How to Calculate Automobile Finance Rates

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    • 1). Determine the interest rate you will pay on your loan. The interest rate is affected by your credit score, amount you are borrowing, term of your loan and whether you are buying a new or used vehicle.

    • 2). Determine the term of your loan, or how long you are going to take to repay it. Most auto loans range from two years to five years and the longer your term the higher the interest rate will be.

    • 3). Determine the amount you are borrow and any closing costs of the loan. These include any fees the bank charges you to originate the loan.

    • 4). Determine the periodic rate by dividing the annual interest rate by the number of periods per year. For example if you make monthly payments you would divide by 12.

    • 5). Determine the monthly payment using the following formula where C is the cost of the loan, P is the principal of the loan, R is the periodic rate, N is the number of periods and MP is the monthly payment. MP = ((C+P)*R*(1+R)^N) / ((1+R)^N -- 1)

      You can also use Microsoft Excel and use the PMT function. Enter "=PMT(R, N, (C+P) ). For example, if you took out a $15,000 loan at 9 percent interest for 60 months with $1,000 of closing costs, your monthly payment would be $332.13.

    • 6). Solve for the monthly APR in Microsoft Excel using the RATE function. Enter "=RATE(R, MP, P)" into a cell to get your APR. For example, if your rate was 9 percent, the monthly payment was $332.13, and the amount you borrowed was $15,000, the monthly APR would be about 0.98 percent.

    • 7). Multiply the monthly APR by 12 to get the annual percentage rate. For example, a 0.98 monthly APR would result in about an 11.76 percent APR.

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