915 WALKERS LINE, Burlington, ON, L7N3V8, Canada
My Garage

What Is Car Loan APR And What Does IT Mean?

What Is Car Loan APR And What Does IT Mean?

When you’re researching auto loans, you’ll come across interest and car loan APR a lot. It’s one of the main criteria with which we compare loans. But what exactly is APR and what does it mean?


We tasked our Acton auto loan team with explaining exactly what APR means and how it impacts your car loan. Here’s what they came up with.


What is APR?


Auto loan APR stands for Annual Percentage Rate. It’s the total annual cost of loan interest you will pay on the amount you borrow plus any fees for the loan.


You’ll see interest rate and APR used interchangeably. For Acton auto loans that’s fine because they are the same thing. For other credit that includes charges, the APR and interest rate may be slightly different as APR takes those charges into account while interest rates do not.


When you see a percentage next to a loan offer, that’s the APR and shows you exactly how much interest you’ll be paying on the principal amount per year.


For example, an auto loan at 4% APR means you’ll be paying 4% interest on the amount you borrow per year.


How is Car Loan APR calculated?


Auto loan APR is calculated daily and multiplied by payment period. For most auto loans, that’s monthly, so your annual percentage rate is multiplied by 12, for each month of the year.


Remember, APR includes the loan amount plus any fees charged by the lender.


What determines the interest rate of my Acton auto loan?


Your credit score has a major influence over your auto loan interest rate. Your credit score is a measure of your lending risk and the interest charged reflects the risk the lender is taking.


The higher your credit score, the lower risk you are perceived to be. So, you get a lower interest rate.


The lower your credit score, the higher the risk you are perceived to be. So, you get a higher interest rate.


How can I get a lower rate on an auto loan?


As the interest rate, or APR, you’re charged is determined largely by your credit score, you can improve your score to get a lower rate.


You can improve your score by never missing a payment, paying down existing debt, correcting any errors on your credit report or widening your credit mix.


Other ways to get a lower rate is to put in more money as a down payment, borrow more or less or borrow over a longer term.


Some auto loans will charge lower rates for higher amounts or for longer terms. It may not make sense but the lender will make more money by charging less.


The headline rate may be lower but the amount you’re paying that interest on, or will be paying it over more than makes up for offering a lower rate.


Contact Unique Chrysler for help, advice and competitive Acton car finance and leasing.


For any questions, concerns, or inquiries. Please don’t hesitate to contact us here!


Thanks for reading. Be sure to connect with us on Facebook, Twitter, Instagram, or LinkedIn to stay up to date on our latest great articles!

Categories: Auto Loan

Tags: ,