What Is APR for a Car Loan?


When it comes time to buy a new ride, you have two options: pay for it all in cash or take out a loan. With the latter, a lender buys the car for you and lets you pay it back gradually over a certain number of years.

There are several parts that go into the loan, including APR. Below, we’ll explain exactly what APR is for a car loan. Then, when you’re ready to take out a loan near Lowell, Dracut, or Tewksbury, the staff at Ira Toyota of Tewksbury will guide you through the process.

Defining APR

APR stands for Annual Percentage Rate. It’s listed with an interest rate on a car loan, with the two differing slightly.

APR reflects the total cost of financing your automobile each year. This includes fees and interest accrued to the day of your very first payment.

Interest rate, meanwhile, represents the cost of borrowing each year. This doesn’t include any fees or interest accrued to the day of your first payment. Rather, it’s simply the cost of borrowing money you need for your automobile.

While these rates are defined differently, they do go hand-in-hand. That’s because the interest rate is normally expressed on a loan as a percentage for a 1-year period (i.e., the APR). Plus, they’ll give you the same monthly payments. They’ll also lead you to paying the same amount for your vehicle in the long run.

How APR Affects Your Auto Loan

There are two major parts to an auto loan: the principal and interest rate. The principal is the cost of the vehicle itself, while the interest rate is what’s charged to a borrower for the money loaned.

The amount of interest you pay doesn’t remain the same over time. In fact, you usually pay a higher interest charge at the beginning of your loan compared to the end. Then, as the months go by, the interest rate decreases while the principal amount increases—all while the monthly payments remain the same.

You may be wondering, though, how the overall APR is determined. There are several factors to consider, including:

  • What your credit history is like.
  • Whether you’re buying a new or used vehicle.
  • How long you’ll take to pay off the loan.

Since these could all affect what APR you’ll get, you’ll want to work with a finance expert to help you out.

Car Loan Term & Interest Charges


The length of your loan can also affect what the interest charges will look like each month.

For example, you may have taken out a $12,000 loan with a 10% interest rate. Let’s say you have two loan terms to choose from: 48 months or 60 months. The latter would result in lower monthly payments. However, you have to pay the 10% interest rate back, regardless. So, with the extra 12 months, you’re actually paying more interest over time.

It’s important to understand interest rates and loan term lengths and how they interact. This could even be the case if you ever wanted to refinance your car.

Learn More About APRs for Car Loans

If you need more information on APR for auto loans, we can help! Contact Ira Toyota of Tewksbury, and we’ll cover each part of a loan in detail.

Plus, we’ll guide you through each step of the car buying process—and have you driving home to Lowell, Dracut, or Tewksbury in a new or used Toyota before you know it!