Tips to calculate auto financing rates

Car buyers need to calculate the auto financing rates they pay in order to avoid spending more than what they should. Although the calculations involved in this particular task is complicated, car buyers should allow themselves to learn how their payments are calculated. Try calculating your auto financing rates using the following tips.

1. Try to determine the interest rate placed on your loan. Always bear in mind that the interest rate is influenced by the credit score you own, the amount of money borrowed, and the loan’s term.

2. Try to determine the loan term that the lender has placed on you to pay for the amount you borrowed. The most common loan terms placed by lenders on the loan they offer are from two to five years or sixty months.  Always bear in mind that longer loan terms have greater interest rates compared to short-term loans.

In addition to this, you also need to determine the amount borrowed and other costs placed by lenders to start the loan.

3. Calculate the periodic rate by getting the quotient of the APR and the number of times you pay for the monthly payments. In case you pay for the loan’s monthly payment, you can divide the APR by 12.

4. Calculate the auto financing’s monthly payment using the formula “MP = ((C+P)*R*(1+R)^N) / ((1+R)^N — 1)”. In this formula:

  • MP is the monthly payment
  • C is the cost of the loan
  • P is the principal amount of the loan
  • R is the periodic rate
  • N is the number of periods

5. You can also use the Microsoft Excel RATE function n calculating the monthly payments involved on the loan.

6. Obtain the APR of your loan by multiplying the monthly APR by twelve. This gives you the exact APR in involved in the entire loan.

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