When it comes to understanding how much you'll pay for a new Volvo, the vehicle's price tag isn't necessarily the most important factor to consider; now is the interest. Instead, the best indication of a vehicle's true cost is the annual percentage rate; or, APR.

What's the difference between APR and interest rate?

While the interest rate of a car loan is what the loan issuer charges per month, the APR indicates the amount of interest for a whole year. It's given as a percentage and includes all fees, like the origination fee (the payment associated with establishing the loan account) and prepaid finance charges, making it a more accurate reflection of the cost of financing a vehicle.

How is APR calculated?

Calculating APR can be a bit complicated. The total loan amount changes with each payment, so the APRs affect changes, even though the rate stays the same. If you know your interest rate, it's far easier to calculate APR using a spreadsheet program like Microsoft Excel or Google Sheets. Type the following into any spreadsheet cell:

  • =RATE(number of months in loan term,monthly payment including standard interest rate (expressed as a negative),value of loan minus fees)*12

For example, say the amount you want to finance is $22,000 over five years, and the monthly payment (including interest) is 395.36. You would then enter:

  • =RATE(60,-395.36,22000)*12

This gives you an APR of 0.03 or 3.0%.

Why is APR important?

However, calculating APR isn't as important as understanding what affects it and its effect on your loan. While APR tells you more about the loan's cost than the interest rate, the interest rate is the APR's most influencing factor, which, in turn, is most influenced by credit, according to nerdwallet.com (June 24, 2020). A good credit score lowers the lender's perception of an applicant's risk and can help shoppers secure a lower interest rate and thus a lower APR. Shorter financing terms generally have the lowest APRs since the borrower will pay off the loan more quickly. Plus, shorter terms provide less time for interest to accrue, which can save you even more money.

Loans for used models usually carry slightly higher interest rates. However, the lower purchase price will generally allow you to save money in the long run.

Find Volvo Financing at McKevitt Volvo Cars, near Pleasanton and Piedmont

McKevitt Volvo Cars makes it easy to apply for Volvo financing online. If you have any questions about Volvo models, APR, and current financing offers, please feel free to reach out to us at your convenience. It will be our pleasure to assist you.

Categories: Finance, New Inventory