{"id":38651,"date":"2022-04-11T08:00:47","date_gmt":"2022-04-11T08:00:47","guid":{"rendered":" https:\/\/dev.way.com\/blog\/?p=38651"},"modified":"2022-04-25T07:00:35","modified_gmt":"2022-04-25T07:00:35","slug":"what-is-apr-on-a-car-loan-and-how-is-it-calculated","status":"publish","type":"post","link":"https:\/\/dev.way.com\/journal\/what-is-apr-on-a-car-loan-and-how-is-it-calculated\/","title":{"rendered":"What Is APR On A Car Loan and How Is It Calculated?"},"content":{"rendered":"

If you’ve gone shopping for car loans, you’ve surely come across the term APR. And while you may know it’s some form of interest rate, what exactly is APR on a car loan, how is it calculated, and how different is it from a regular interest rate? This post tells you everything you need to know!<\/span><\/i><\/p>\n

The APR, or Annual Percentage Rate, is probably the most important number you need to keep an eye out when borrowing from a lender – even more than the loan amount! That’s because even a small percentage point difference can translate into thousands of dollars either saved or lost. However, there is often confusion regarding what is included in the APR, what the best APR is for a certain credit score, and how to calculate it.<\/p>\n

In this post, we discuss everything you need to know about it.<\/p>\n

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What is APR (Annual Percentage Rate) on a Car Loan?<\/span>\u00a0<\/span><\/h2>\n

The <\/span>Annual Percentage Rate (APR)<\/span><\/b> \u00a0is the cost of borrowing a certain amount of money to purchase a vehicle – including fees and interest charges – expressed as a percentage. Typically, APRs are expressed as an annual rate.<\/span><\/p>\n

While the actual amount you want to borrow to buy the car is called the principal, the lender will charge you a certain amount of interest on the principal, which is called the car loan interest rate. However, there are several additional fees and charges you may have to pay to actually get the vehicle on the road – like dealership fees, registration fees, etc.\u00a0<\/span><\/p>\n

Though it may seem unimportant, these cascading charges can often add a few hundred dollars or more to the loan amount – thereby increasing your monthly payments. That’s why it’s important to know the total APR charged for your loan rather than just the base interest rate.\u00a0<\/span><\/p>\n

Why Is APR Important?\u00a0<\/span><\/h2>\n

The APR is one of the two most important criteria you need to look out for when taking out a loan – the other being the loan term. The higher your APR, the more you will pay as interest charges over the loan term.<\/strong> APR is based on simple interest and does not account for the compounding of interest within a year.<\/p>\n

What Is the Difference between APR on a Car Loan and Interest Rate?<\/h2>\n

A car loan interest rate is how much you pay every year as a percentage of the principal (the amount borrowed), while APR also includes other additional charges and costs of borrowing money.<\/p>\n

The APR is typically higher than the interest rate. It may include some of the following charges\/fees:<\/p>\n