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Author: admin | Category: Calculator Car Loan | Date: 13.10.2015

Mathematically, these rates will give you the same monthly payments and will result in you paying the same amount for your car in the long run. The distinction between these rates is simple in many ways, but it is important that you understand how to interpret each. When you buy or refinance a car, you may borrow more than your car is worth for multiple reasons (this list is not exhaustive). The money you borrow to pay for add-on products and taxes goes directly towards what is called the “amount financed.” It is the amount you borrow to make your purchase.
Your prepaid finance charges, on the other hand, are part of your “finance charge.” Your finance charge is what you pay to compensate the institutions that help you purchase your car. The difference between APR and your note rate lies in how you choose to look at your prepaid finance charges. If you prefer to think of your prepaid finance charges as separate from your loan and as a type of charge you pay to get your loan, then your APR will reflect how much you pay each year in total to compensate the institutions that help you finance your car. If instead you prefer to think of your prepaid finance charges as simply part of your loan, almost as if they are part of the purchase price, then your note rate will reflect how much you are paying on top of your loan principal (i.e.
It is important to realize that your APR and note rate will mathematically give you the same monthly payment and finance charge for any given loan. Basically, all you need to know calculate your car loan payment is the length of your loan in months, your principal, and your note rate (i.e. Another way to calculate your APR is to think about what your note rate and APR actually reflect. Your note rate reflects the interest charges you pay per year for the amount you borrow (your principal) whereas your APR reflects the portion of your finance charge you pay per year for the amount you finance (your amount financed).
You cannot really use these equations directly to calculate your note rate and APR, because your loan amount (i.e. However, you can estimate your note rate and APR using an average of your loan balance over a 12 month period. And if you want to estimate the APR, you can divide the $905.02 by the average balance of the amount financed over the first year, which is $13,888. You can use the procedures described above over any 12 month period of your car loan to calculate an estimate of your note rate and APR.


You pay your prepaid finance charges at the beginning of your loan, hence the term “prepaid.” Still, you pay back the principal on your loan (which will likely include your prepaid charges) with your monthly payments, so you can think of your prepaid finance charges as another type of interest charge. In our example, the $200 of prepaid finance charges are paid down via amortization as the graph below depicts (in orange). The orange portion of the lines depict the portion of the finance charge for each monthly payment that is made up of the prepaid finance charges. Car loan payment calculator cars., Use our car loan calculator to calculate auto payments over the life of your loan. FirstMerit offers to its users a calculator to help you determine your monthly car loan payment or purchase price. The calculator is the same as the image above, notice that you can click on your spacebar in order to view the full report with graphics and the whole amortization schedule. Click the Next button on the bottom of the page and you will be brought to the residency page which will verify that you are located in an area that FirstMerit serves. However, lenders give you both rates on your car loan paperwork so that you can understand your loan better. Essentially, the amount financed reflects how much you would pay for your car even if you purchased it with cash (without financing). Most borrowers think of finance charges as the interest charges they pay on their loans, and this is correct. Both your interest charges and your prepaid finance charges will count as such compensation (i.e.
The reason lenders give you both rates is for you to understand better how much you are paying for your loan. Using a car loan service, you find a lender that agrees to give you a 60 month car loan for this amount at a 6% interest rate (i.e.
You can use a car loan payment calculator to figure out your payment, but to better understand APR it is useful to look at the equation that such calculators use. The graphic below illustrates how the note rate and APR will give you the same monthly payment and finance charge for your loan. To calculate an estimate of the note rate, you can divide the $838.89 by the average loan balance over the first year, which is $13,978.


But you would never need to use these calculations since your loan documents will give you all the information you need on your car loan.
Because of how car loan interest works, you pay more interest at the beginning of your loan than near the end as your loan balance decreases, a process known as amortization. As you can see, both the blue interest charges and the orange prepaid finance charges decrease over the course of the loan as you pay down your loan balance. If you plug in the numbers (or use the calculator), you will find that your monthly payment for this loan is about $293.86.
All that changes when calculating APR in this equation is that you would use the amount financed (which does not include prepaid finance charges) in place of your principal. Hopefully, however, these calculations give you more insight into the relationship between your note rate and APR. If you add up all the interest charges and prepaid finance charges, you will find that the total finance charge is $2,631, making the total of payments for this loan $17,631 [$17,631 = $15,000 + $2,631 OR $17,631 = $293.86 x 60 months]. You can change down payment amount  and loan term to see how they can impact your monthly payment. These charges, are known as prepaid finance charges and are usually bundled into your financing so you do not have to pay them out-of-pocket. In keeping with how car loans are structured, you will pay more interest charges and prepaid finance charges near the beginning of your loan than near its end. Amortization of prepaid finance charges is discussed in more detail near the end of this document (and you can read more about car loan interest charges here). Your loan will come with $200 in prepaid finance charges, meaning your principal will be $15,200 [$15,200 = $15,000 + $200]. Ultimately, you would plug in your monthly payment and amount financed and solve for the interest rate part of the equation – which is not easy to do mathematically since the interest rate appears twice in the equation. Your prepaid charges may also include the interest that accrues to the day of your first car loan payment.



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