Interest Rate Equation:
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This calculator determines the effective annual interest rate for a car loan given the monthly payment amount, principal loan amount, and loan term in months. It solves the standard loan payment equation for the interest rate.
The calculator uses the loan payment equation solved for rate:
Where:
Explanation: The equation is solved numerically using the Newton-Raphson method to find the rate that balances the payment equation.
Details: Knowing the effective interest rate helps borrowers compare loan offers, understand the true cost of financing, and make informed decisions about auto purchases.
Tips: Enter the monthly payment amount, original loan amount, and loan term in months. All values must be positive numbers.
Q1: Why is my calculated rate different from the advertised APR?
A: The calculator shows the effective interest rate, which may differ from nominal APR due to compounding, fees, or other loan terms.
Q2: What is a typical car loan interest rate?
A: Rates vary by credit score, loan term, and market conditions. As of 2023, rates typically range from 3% to 10% for borrowers with good credit.
Q3: Does this include taxes and fees?
A: No, this calculates the rate based only on payment, principal, and term. Additional costs would require adjusting the principal amount.
Q4: How accurate is this calculation?
A: It's mathematically precise for fixed-rate loans without prepayment penalties or balloon payments.
Q5: Can I use this for other types of loans?
A: Yes, it works for any fixed-rate installment loan with equal monthly payments.