Why Is the APR the Most Important Factor When considering a Car Loan?

The annual percentage rate, or APR, is one of the most important factors to keep in mind when taking out a car loan. Simply put, the APR is the amount of interest you will be paying on your loan each year, expressed as a percentage. For example, if you take out a car loan for $10,000 at an APR of 5%, you will be required to pay $500 in interest over the course of the year.

While the APR is not the only factor that you should consider when taking out a car loan – after all, you will also need to think about things like the length of the loan and your monthly payments – it is certainly the most important factor. This is because the APR will have a direct impact on how much you will ultimately end up paying for your car.

How The APR Affects Your Total Loan Cost

The size of your APR will have a direct impact on how much money you end up paying for your car, both in terms of interest and in terms of your monthly payments. For example, let’s say that you are considering two different loans: Loan A has an APR of 5% and Loan B has an APR of 7%. Both loans are for $10,000 and have identical terms (i.e., they are both for five years).

If we do some simple math, we can see that the extra 2% APR on Loan B is going to cost you an extra $200 in interest over the course of the five years. In terms of your monthly payments, Loan A will have monthly payments of $208 while Loan B will have monthly payments of $217. That may not seem like much, but it can add up over time!

Conclusion:

As you can see, it pays to shop around for a loan with a low APR. Not only will it save you money in interest charges, but it will also lower your monthly payments. So when you’re looking at loans, make sure to pay attention to that all-important number: the APR.