What is an effective interest rate on a car loan?

I got a 0% APR car loan through the dealer, but the contract says the effective interest rate is 1.79%. What is the effective interest rate on a car loan, and how do I have any interest rate at all on a 0% APR deal?

Answer
“An effective interest rate is what you pay in interest after all taxes and fees are added to your loan.
Many 0% APR deals have a cost of borrowing, which is quoted per $1,000 borrowed. With this, you might see a $19.99 fee due per $1,000 financed. A cost of borrowing is typically clerical or other fees added to the 0% portion of the loan.
Because of this, not every 0% APR loan is actually 0%. To determine what other fees or charges may be associated with your loan, you should look into the terms and conditions section of your finance paperwork.
Even with extra fees, 1.79% for a new car is a great rate, so there’s a silver lining in your situation.
Insurance for your new car can be quite expensive. If you want to ensure you have found the best rate for your new vehicle, use the free Jerry app. Jerry compares rates from the top 50 companies in under a minute, delivering the best deals to your phone.”
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Eric Schad
Answered on Aug 02, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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