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Financing simplifies the process of getting the vehicle you want on your timeline — but some of the technical jargon that comes with auto loans can pose an unexpected hurdle. Before you sign an agreement, it’s important to make sure you understand all the terms.
Interest rates and annual percentage rates (APR) are two of the key measures you’ll see when comparing your auto financing options. Here’s what you need to know about their differences.
Your auto loan’s interest rate is the percentage of the total cost you’ll pay to the lender each year to borrow money. It doesn’t include any additional financing charges. For this reason, a lower interest rate doesn’t necessarily translate to a lower borrowing cost in the long term.
APR is not the same as the interest rate of your car, though the two percentages are related. The APR includes the interest rate along with other borrowing fees you’ll pay, such as prepaid finance charges. The higher the additional costs, the higher the APR and the more you’ll pay over the life of the loan.
If the APR and the interest rate for a car are the same through a particular lender, that means they don’t charge additional fees.
The bottom line is that APR provides a more accurate measure of what you’ll pay to finance a vehicle over time than the interest rate. You still need to pay attention to both rates to ensure you’re getting the best terms from your lender. Comparing the interest rate from one auto loan to the APR of another won’t give you a complete picture of the cost.
Interest rates and APR aren’t the only factors that will affect how much you pay for your vehicle over time. You should also consider the repayment period — you’ll pay more in interest for a 60-month term than a 48-month option with the same rate. Understanding APR versus interest rates is just the start of making sure you get the best deal.
Whether you signed your auto financing agreement without fully understanding the terms or it’s just been a few years, there’s a good chance you could lower your payment now. RefiJet is here to help you refinance your auto loan and save. See if you’re eligible and reach out to get started today!
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