If you're planning to purchase a new Acura, unless you'll be paying the full cost upfront, you'll most likely be taking out a car loan. Car loans are generally paid back with interest, which is the fee charged by the lender to cover the full price of the vehicle in advance. However, interest isn't the best indicator of a loan's true cost. For that, you'll need to know the annual percentage rate, or APR.

What's the difference between the APR and interest rate?

While an auto loan's interest rate is the amount charged per month by the lender to issue the loan, APR is the amount of interest for the whole year, given as a percentage, and includes all fees, such as the origination fee (the payment associated with establishing the loan account) and prepaid finance charges. This makes the APR a more precise reflection of the cost of financing a vehicle.

How do you calculate APR?

The easiest and quickest way to find out your APR is to ask the lender. The Truth in Lending Act requires lenders to provide all loan details, including the APR, before the borrower signs the agreement. Therefore, APR will be clearly stated in the contract. However, 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.

First, you need to find the total monthly payment, including the standard interest rate. If you don't know it, you can calculate it yourself. But since the total loan amount changes with every payment, it's easiest to use a spreadsheet program like Microsoft Excel or Google Sheets.

Calculating monthly payment

You can find your total monthly payment by typing the following into any spreadsheet cell:

  • =PMT(interest rate as a decimal/12, number of months in loan term, loan amount with fees)

For example, say you want to finance $30,500 ($30,000 for the loan plus a loan application fee of $500), the term length is 60 months, and the interest rate is 3.5%, then you would enter the following into any spreadsheet cell:

  • =PMT(.035/12,60,30500)

Note that since commas separate each value, you need to omit the comma in the loan amount. In this calculation, the total monthly payment would be $554.85, expressed as a negative number (or in red). This is important, as the APR formula will use -$554.85. Now, you can use the following formula to calculate your APR:

  • =RATE(number of months in loan term, estimated monthly payment, value of loan minus fees)*12

Using our example above, we would enter:

  • =RATE(60,-554.85,30000)*12

The APR comes out to 0.041737, or 4.17%. You can compare this rate side-by-side with other lenders to see which costs less to finance a vehicle.

Get convenient Acura financing near Norwood and Dedham, MA

Reach out to Prime Acura Westwood today for more information about financing a new Acura car or SUV. Our friendly and experienced representatives will be happy to assist you.

Categories: Finance