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How Car Loan Interest is Calculated | Finlease

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How is car loan interest calculated?

Car loan interest is calculated based on:

  1. the amount of the loan
  2. the interest rate
  3. the length of the loan

The interest rate is presented as an annual percentage rate (APR) and is fixed. This means that the rate will not change during the loan period. The length of the loan will determine how often you make payments and how much interest is due with each payment. Typically, interest will generally be calculated as a percentage of the remaining loan balance, which will be slightly lower for each payment as you pay it off. The total interest you pay can be calculated by multiplying the loan balance by the interest rate and the number of payments made.

The use of a balloon payment can reduce the size of the regular repayments throughout the life of the loan. This is because a substantial portion of the loan principal is deferred until the end of the loan term. However, it’s important to remember that this also means you will still owe a large lump sum payment at the end of the loan term.

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