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Jerry Data & Research
How do you calculate interest on a car loan manually?
I’m trying to budget to buy a new car. I’d like to figure out how much interest I’d be paying on my car loan so I can move things around. There’s a lot of calculators out there, but I’d rather do it by hand. I trust myself more than logging numbers into something online.
Lauren Smith · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“Budgeting before buying a car is important, so it’s great you’re looking to learn the steps. To find out the interest on a
car loan
, you are going to have to first collect some numbers. You’ll need:- The total loan amount you want to take out.
- The length of your loan
- The APR (annual percentage rate)
The average amount for a car loan is around $34,000 and the average length is 72 months. Next is APR, which fluctuates, depending on your credit score. But let’s say you have good credit and have scored an average annual percentage rate of about 6%. The formula is (APR/year)x loan amount equals your monthly payment.
(0.06/12)x34,000=170
So percentage divided by 12 (months in a year) multiplied by the total amount of your loan equals how much you would pay monthly. Now multiply that by the length of your loan. In this case, that’s 12,240. Now let’s say you can get a lower interest rate because your credit is better. So let’s say 5%. The monthly payment of interest goes from $170 to around $142 and the entirety of it drops from $12,240 to $10,200.
Or another way to help you with paying less would be to have a shorter length of your loan. So let’s say instead of 6 years you do 60 months or about 5 years. So that monthly price of $170 stays the same but you end up paying a total of $10,200 just like if you’d had a better credit score. This is why shorter loan terms can be helpful because you end up paying less in the long run and it’s why shopping around is a good idea.
Now if you end up getting your loan and realize later that you wish you’d gotten a better deal because your credit score has gone up or you can pay more on it, it might be a good time to refinance. You can refinance your loan through
Jerry
app. We won’t just try and save you money on your car insurance but also see if we can find you a better deal on your car loan through our refinancing service.”View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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