Calculating APR for Auto Loans | Indianapolis, IN

If you're in the market to buy a new car, then you're likely encountering some different numbers during the financing process. While many people know what an interest rate is and what constitutes a good one or a great one, a lot of people aren't entirely familiar with the APR and what it means. Don't worry Indianapolis, Speedway, and Lawrence drivers, we're going to walk you through it.

At Andy Mohr Nissan, we want you to be aware of all of the ins and outs of your new auto loan. For this reason, we have created a little rundown of what APR is, how it's calculated, and what is a good APR. We'll also talk about APR vs. interest rates and the distinct differences between the two.

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What Is APR? Isn't That the Same as My Interest Rate?

 When you buy a car, you hear a lot of percentages being thrown around. The first of these is your interest rate for your new loan. This percentage is usually a bit lower and is simply the cost of borrowing money from the financing institution. This number includes none of the fees that are charged for your loan.

The APR or Annual Percentage Rate, however, is also figured a percentage, but this number will include all the fees for the loan itself. The percentage rate is usually presented as the higher of the two numbers, but it's necessary to remember that they're not the same thing at all. All lenders are required to provide you with the APR, so you're better able to understand what you'll be paying with each payment.

What Is a Good APR?

You hear a lot of commercials and ads that present buyers with a zero percent financing options, but these are pretty rare and only account for under 10 percent of most loans issued, so don't start sweating when you see that you're not getting zero percent.

Your average APR can register anywhere from 3-10%, but obviously you'll want to aim for the lower numbers. Plus, 3% is a very good annual percentage rate and is your reward for keeping good credit over the years. Anywhere between 4-6% is considered to be a good APR and is usually around the average for people with mid-range credit. Should your credit be less than perfect, you'll usually pay a higher APR than those with excellent credit, but a car loan is a great step in the right direction for improving your credit.

Related Post: How to Lower APR on a Car Loan

How Is APR Calculated?

Okay, now it's time to break out your calculators and your math skills as we talk about how your APR is calculated. It's actually a pretty simple equation once you understand the numbers you're considering. Your APR will include all the prepaid finance charges that you're giving the bank in return for giving you the loan.

Both the interest rate and the APR will get you to the same number, which is your car payment amount. Basically to find your APR, you calculate one year, or 12 months, times your interest rate. For example, say you have a 3% interest rate on your loan. You then multiply .03 x 12 and there is your APR at 3.6%.

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Let's Talk Financing

If you're ready to buy a car and you want to go over some of the numbers with a member of our finance team, give us a call at Andy Mohr Nissan. We can walk you through what all of the numbers mean, explain why you're being offered a certain APR, and break this number down even further for you to fully grasp the concept. Our customers in the Indianapolis, Speedway, and Lawrence areas can trust us to give them the details they really need or want.

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