How do I calculate the interest on a car loan?
I want to know exactly how much I'm paying in interest. Can you help me out?
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Answered on Mar 08, 2021
If you want to calculate the interest on a car loan, the easiest way to do so is to hop online. Typing “car loan calculator” or “car loan interest calculator” into a search engine should turn up a list of sites that can do all the math for you and present it in a readable fashion.
If you want to understand how much interest you’re paying, you might want to calculate the amount on your own. To do this, take the amount of principal you owe (this will vary as you pay down the loan), multiply it by the interest rate in decimal format (so five percent = .05), and divide that figure by the number of payments per year. (The interest rate is annualized, so the number of payments also has to be annualized ). Here’s an example:
- Loan principal = $20,000
- Interest rate = .05%
- Term = 60 months, with 12 payments per year
- Interest cost = ($20,000*.05)/12 = $83.33
Keep in mind that after each payment, your principal will go down, so you’ll pay less interest each month and pay more toward the principal.
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