How to calculate new car loan rates

Calculating new car loan rates is most of the time difficult because there are many factors involved in it. Knowing the exact amount needed for the repayment of the vehicle is also difficult. You still need to understand how the Annual Percentage Rate (APR) and the Annual Percentage Yield (APY) affects the loan rates for a new vehicle despite the abundance of online car loan calculators. This article explains the APR and APY to help you get a better idea on how the new car loan rates are calculated.

Annual Percentage Rate (APR)

The Annual Percentage Rate is a popular concept used by lenders when you inquire about the interest rates of the loans they offer. This may sound common but only few car buyers know what this concept really means.  The APR is basically the amount of interest computed within a year. However, most lenders use the monthly interest rates to promote that their loan rates are lower compared to what the other lenders are offering. Thus, the monthly interest rate of a car loan is calculated using the formula written below.

Monthly Percentage Rate = Annual Percentage Rate/12

This means that if your present car loan has a 0.4% monthly interest rate, you are actually paying a 4.8% Annual Percentage Rate. Thus, you need to select a loan with APR lower than 4.8% or a monthly percentage rate lower than .4%.

Annual Percentage Yield (APY)

The Annual Percentage Yield is the accrued amount of the loan in a single year. Compared to APR that uses a simple interest, the APY uses a compounded interest. By knowing the APY, you are able to determine the ways in which the interest rate affects the needed money to pay the total loaned amount for a new car. It is usually calculated using the formula given below.

Annual Percentage Yield= (1+APR/n)^n-1

In this formula, the APY stands for the Annual Percentage Yield, APR stands for the Annual Percentage Rate, and “n” stands for the number of times that the interest rate is compounded in a year.

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