Bill Kolb Jr. Subaru Blog What does APR mean for a car loan?-Bill Kolb Jr Subaru in Orangeburg, near Spring Valley and New City

When calculating how much a car loan will cost, some people may look at the interest, which is the fee charged by a lender for providing the loan. However, standard interest doesn't tell the full story. For a better indication of a loan's full cost, it's best to look at the annual percentage rate, or APR.What's the difference between APR and interest rate?While the interest rate of a car loan is what the loan issuer charges per month for the loan, the APR indicates the amount of interest for a whole year, given as a percentage, and includes all fees, like the origination fee (the payment associated with establishing the loan account) and prepaid finance charges. This makes it a more accurate reflection of the cost of financing a vehicle.How do you calculate APR?The easiest and most accurate way to get your APR is to simply ask the lender. The Truth in Lending Act states that lenders must provide all loan details, including APR, before the borrower signs the agreement. Therefore, APR will be clearly stated in the contract and pointed out to you by the finance representative. However, if you'd like, you can estimate the APR yourself if you know the loan amount, the term length, the interest rate, and any other fees associated with the loan.To start, you need the total monthly payment, including the standard interest rate. If you don't know it, you can calculate it yourself. However, since the total loan amount changes with every payment, it's easier to use a spreadsheet program like Microsoft Excel or Google Sheets. Type the following into any spreadsheet cell:=PMT(interest rate as a decimal/12, number of months in loan term, loan amount with fees)So, for example, say you want to finance $22,500 ($22,000 for the loan plus a loan application fee of $500), the term length is 60 months, and the interest rate is 2.1%. You would enter the following into any spreadsheet cell. (Note that since the commas separate each value in the formula, you can't use a comma when entering the loan amount.)=PMT(.021/12,60,22500)In our example, the total monthly payment would be $395.36. This amount is expressed as a negative number (or in red). This is important, as the APR formula will use -$395.36. Now, you can use this formula to calculate your APR:=RATE(number of months in loan term, estimated monthly payment, value of loan minus fees)*12Using the example above, you would enter:=RATE(60,-395.36,22000)*12Here, the APR is 0.03, or 3.0%. Now, you can compare this rate to other lenders to determine which offers the better deal.Get convenient Subaru financing near Nyack and Suffern, NYFor more information about financing a new Subaru car or SUV, please reach out to Bill Kolb Jr Subaru at your convenience. And if you'd like to get behind the wheel to try out one of our new Subaru models for yourself, we invite you to visit us here in Orangeburg for a test drive. We'd love to give you a tour.