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APR Equation:
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The Annual Percentage Rate (APR) represents the true cost of borrowing, including interest and fees, expressed as a yearly rate. For car loans, it provides a standardized way to compare loan offers from different lenders.
The calculator uses the following equation:
Where:
Explanation: The equation balances the loan amount with the present value of all future payments, minus any upfront fees.
Details: APR helps borrowers compare loans with different interest rates and fee structures. A lower APR generally means a less expensive loan, though other factors like prepayment penalties should also be considered.
Tips: Enter the total loan amount before any down payment, your exact monthly payment, loan term in months, and any upfront fees. The calculator solves for APR using an iterative numerical method.
Q1: Why is APR different from interest rate?
A: APR includes both interest rate and fees, giving a more complete picture of loan cost. The interest rate alone doesn't account for origination fees or other charges.
Q2: What's a good APR for a car loan?
A: Rates vary by credit score. As of 2023, excellent credit (720+) might get 4-6%, good credit (660-719) 6-10%, and subprime borrowers may see 10-20% or higher.
Q3: Does this calculator work for other loans?
A: Yes, it works for any fixed-rate installment loan with monthly payments (personal loans, etc.), though mortgage APR calculations may include additional factors.
Q4: Why does my calculated APR differ from the lender's?
A: Lenders may include additional fees in their APR calculation or use slightly different computation methods. Always verify with your lender.
Q5: How can I lower my car loan APR?
A: Improve your credit score, make a larger down payment, shop multiple lenders, or consider a shorter loan term.