How to Understand Your Auto Loan Annual Percentage Rate (APR)

Buying a new car can be exhilarating, but paying for it is another thing altogether. If you're taking out an auto loan to purchase your vehicle, it's important to understand your annual percentage rate (APR). Your APR determines how much you'll pay in interest over the life of your loan, so knowing how it works can help you save money in the long run.

What is APR?

APR is the interest rate you'll pay annually on your auto loan. Unlike the interest rate, which is the percentage of the principal amount of the loan that you'll pay in interest each year, APR includes any fees or charges you'll pay in addition to the interest. This is why APR is typically higher than the interest rate on your auto loan.

Why is APR important for auto loans?

When you're shopping for an auto loan, you'll want to compare the APRs of different lenders to find the most affordable option. Because APR includes all of the costs associated with borrowing money, it gives you a clearer picture of what you're actually paying for your loan. A lower APR means you'll pay less in interest and fees over the life of your loan.

How to calculate your auto loan APR

Calculating your auto loan APR can be a little tricky, but it's important to know so you can compare lenders and find the best deal. To calculate your APR, you'll need to know the interest rate, the length of your loan, and any fees or charges associated with your loan. You can use an online auto loan calculator or do the math yourself using a formula.

How to get the best auto loan APR

To get the best auto loan APR, you'll want to shop around and compare offers from different lenders. Check with local banks and credit unions, as well as online lenders, to find the most competitive rates. You should also try to make a larger down payment on your car to lower your loan amount and potentially qualify for a lower APR.