1. What is Car Loan Interest?

Car loan interest is the cost you pay to borrow money for purchasing a vehicle. It's calculated as a percentage of the loan amount (principal) and is typically expressed as an annual rate.

2. How Is Interest Calculated on a Car Loan?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Original loan amount ($)
• \( Rate \) — Annual interest rate (in decimal form)
• \( Time \) — Loan term in years

Note: This calculates total interest over the loan term. For monthly payments, the calculation would be more complex (amortized).

3. Understanding the Formula

Details: The formula shows that interest increases with higher principal amounts, higher interest rates, and longer loan terms.

4. Using the Calculator

Tips: Enter the loan amount in dollars, interest rate as a decimal (e.g., 5% = 0.05), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this the same as my monthly payment?
A: No, this calculates total interest only. Monthly payments would include principal repayment and may use compound interest.

Q2: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 7.5% APR = 0.075).

Q3: Why is my actual interest higher?
A: Most car loans use amortized interest (compound interest), which results in higher total interest than simple interest.

Q4: Does this include fees?
A: No, this calculates interest only. Additional fees (origination, documentation) would increase total loan cost.

Q5: How can I reduce total interest?
A: Make a larger down payment (reducing principal), choose a shorter loan term, or negotiate a lower interest rate.