Nominal and effective rates
Car finance rates are charged monthly, so the effective annual rate, which includes compounding, is a little higher than the quoted rate. Fees push it higher still.
The calculator finds the monthly rate at which your payments exactly repay the money you actually receive, then turns it into an annual rate including the effect of compounding: APR = (1 + monthly rate)^12 − 1. Fees paid upfront reduce the money you receive, so they push the APR up.
Worked example
£15,000 repaid at £366.19 a month for 48 months has a nominal rate of 8.0% and an effective rate (APR) of 8.3%.
Comparing deals
Use the effective rate or APR, plus the total amount payable, to compare car finance offers.
Inputs for the car loan effective interest rate calculator
Amount borrowed
The amount of the loan.
Upfront fees
Any arrangement or other fees you pay at the start, or that are taken from the loan. Enter 0 if there are none.
Monthly payment
Your regular monthly repayment from the quote or agreement.
Term
How many months the payments last.
CALCULATOR QUESTIONS
Car loan effective interest rate calculator questions
What's the effective interest rate?
The annual rate once monthly compounding and fees are included.
Why is it higher than the quoted rate?
Because of compounding and any fees.
What's the difference between APR and the interest rate?
The interest rate is what's charged on the balance. The APR also includes compulsory fees and the effect of compounding, so it's the better figure for comparing deals.
Does this cover PCP?
No. PCP's final payment needs a different calculation.