How to Calculate Total Interest Paid on a Car Loan

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How to Calculate Total Interest Paid on a Car Loan
How to Calculate Total Interest Paid on a Car Loan
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Calculating the total interest you have to pay for a car loan can be a difficult and daunting task. The article tries to clarify the procedure to follow for this important operation.

Steps

Calculate Total Interest Paid on a Car Loan Step 1
Calculate Total Interest Paid on a Car Loan Step 1

Step 1. Find the amount that needs to be financed

This value is called “financed capital” and is the starting figure for developing the calculations. There are often hidden costs, such as commissions for opening the file or other unclear taxes. All of these items should be included in the capital, but may not appear on the flyer listing the price of the vehicle.

Calculate Total Interest Paid on a Car Loan Step 2
Calculate Total Interest Paid on a Car Loan Step 2

Step 2. If you pay a deposit, make sure it is deducted from the amount to be financed, so that you know exactly the value of the principal

Calculate Total Interest Paid on a Car Loan Step 3
Calculate Total Interest Paid on a Car Loan Step 3

Step 3. Determine the amount of the monthly payment

If you are about to get a loan for the car, the dealer should be able to tell you exactly this amount.

Calculate Total Interest Paid on a Car Loan Step 4
Calculate Total Interest Paid on a Car Loan Step 4

Step 4. Check the number of installments you will have to pay to pay off the debt

This value determines the duration or maturity of the loan.

Calculate Total Interest Paid on a Car Loan Step 5
Calculate Total Interest Paid on a Car Loan Step 5

Step 5. Take the number of installments and multiply it by the amount you are going to pay each month

Calculate Total Interest Paid on a Car Loan Step 6
Calculate Total Interest Paid on a Car Loan Step 6

Step 6. From this value, subtract the amount of the principal, so you will know exactly the total cost of the loan

Calculate Total Interest Paid on a Car Loan Step 7
Calculate Total Interest Paid on a Car Loan Step 7

Step 7. If you have to perform these calculations but you do not know the amount of each installment, but only the interest rate, it is better to rely on an online calculator

Advice

  • Do some research online by typing "loan calculator". You will find useful tools that will allow you to calculate the cost of a loan, the percentage of interest in each installment and the guidelines for obtaining a loan.
  • If the finance company claims a lower interest rate than your calculations show, ask why this discrepancy is. If you don't get a satisfactory answer, don't rely on this company.
  • If necessary, know that there are downloadable Excel sheets to calculate the interest on a loan for a car.
  • For example, a loan with a monthly payment of € 200 for 72 months (or 6 years) corresponds to a total of € 14,400. If the originally financed capital is € 10,000 then the loan has a cost of € 4,400, i.e. 13.65% per annum.
  • In the end, a loan with a low interest rate but very extended over time is more expensive than a short loan with a slightly higher rate.
  • Make sure that the financial company uses the same terminology and the same criteria that you use when negotiating the loan.

Warnings

  • There is a reason why used car dealers often have a bad reputation. Always behave like a knowledgeable and informed consumer when you take out a loan for your new car.
  • If you are buying a new car, it is best to keep it for a year or two before thinking about reselling it. In fact, in the first months or years of the loan you pay the interest above all, which means that in the amortization plan the value of the financed capital remains almost the same or drops slightly.

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