How is interest rate calculated on a car ? Is it simple interest or compound ?

Answer 1

It is based on your APR (annual percentage rate). When your approved for financing, be sure to look at your APR. Of course the higher the APR, the more interest you pay.

Most auto loans are simple interest loans. On your contract it gives you the APR, finance charge (the dollar amount the credit will cost you), Amount Financed (the amount of credit provided to you) and the total sale price (this is the amount you will pay back after all the pymts are made)

Simple interest is based on 30days of interest. So the trick is, when you make pymts, NEVER go past your due date. When you go past your due date, you pay extra interest. This will affect your final pymt. If you pay late all the time, your final pymt will not be your regular pymt. It may be more. Your loan was based on you making pymt every 30 days.

Some auto financing companies offer deferments or extentions when you fall behind (thats where they skip a pymt or two and move this pymt to the end of the contract) If you take an extention, remember, that 30 day extention is accruing interest. Which will change your final pymt at then of contract.

I hope this helps.

Answer 2

It's compound. No business uses simple interest today. Google an interest calculator or use Microsoft Excel or Microsoft Works to get a few examples. Check out the car ads. I've done it and I get the same answers the ads give.

Answer 3

compounded monthly

Answer 4

depends on the terms of the loan....it could be either