Financing a vehicle is a huge decision, so it’s important to get your car loan information
straight. "Interest" refers to the cost of borrowing money, whereas the APR (Annual Percentage Rate) combines the interest rate and all other broker fees, rebates, taxes, and other factors into one figure. As a result, a loan’s APR is almost higher than its interest rate and more accurately reflects the true cost of your loan. If you have two loan offers and one has a lower APR, the lower APR is usually the better deal.
To calculate the APR, grab a calculator and:
Add all the taxes, fees, and interest charges paid over the entire course of the loan. Check your amortization schedule for a complete breakdown.
Divide the result by the dollar amount of the loan.
Divide by the length of the loan in days.
Multiply by 365 and then 100.
If you prefer to skip the math, try an online tool like an Auto Loan Calculator. Simply enter your loan amount, loan term, interest rate, and data to learn what you’ll pay over the next few years.
MORE: What is an APR and how is it calculated?