Unless you'll be paying cash upfront, buying a new MINI car or crossover typically involves taking out a loan, which you will pay back, with interest, over a predetermined number of months. Interest is the fee that the lender charges for providing money to cover the vehicle's full price in advance. However, the standard interest rate doesn't tell the whole story of the loan's cost. For that, you need the APR, or "annual percentage rate."

What's the difference between APR and interest rate?

While a car loan's interest rate is the amount charged by the lending institution 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 accurate reflection of the cost of financing a vehicle.

How is APR on a car loan calculated?

The easiest way to get your APR is to simply ask the lender. In the United States, the Truth in Lending Act obligates lenders to provide all loan details, including the APR, before the borrower signs an agreement. Therefore, APR must 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 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. Simply type the following into any cell:

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

So, if you want to finance $20,500 ($20,000 for the loan plus a loan application fee of $500), the term length is 60 months, and the interest rate is 4.5%, then you would enter the following into any spreadsheet cell:

  • =PMT(.045/12,60,20500)

The total monthly payment would be $382.18., expressed as a negative number (or in red). This is important, as the APR formula will use -$382.18. Now, you can use the following spreadsheet formula to calculate your APR:

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

Using the example above, you would enter:

  • =RATE(60,-382.18,20000)*12

The APR is 0.05517, or 5.517%. You can compare this rate side-by-side with other lenders, which can help you pay less to finance a vehicle.

Convenient MINI Financing near Hingham, Pembroke

If you have any questions about financing a new MINI or would like more information about the latest MINI models, please feel free to contact South Shore MINI in Rockland, MA. We'll be happy to assist you.

Categories: Finance, New Inventory