Key points
- APR is different from the vehicle price.
- A longer term can lower the payment while increasing total interest.
- Credit profile, vehicle age, term, and lender can affect the offered APR.
- Compare the dealer offer with outside financing when possible.
How APR changes the cost of a car loan
Interest is charged on the financed balance. Two buyers can purchase the same vehicle for the same price and still pay very different totals because their APR and loan term are different.
The amount financed, APR, and number of months work together. Review all three before deciding whether a payment is comfortable.
APR versus interest rate
The interest rate is the percentage used to calculate interest. APR is intended to express the broader yearly borrowing cost and may include certain finance charges. On some auto loans the numbers may be similar, but you should still verify the APR shown in the financing disclosure.
Why the lowest monthly payment may cost more
Extending a loan from 60 to 72 or 84 months may reduce the monthly payment. It can also keep you in debt longer, increase total interest, and make it easier to owe more than the vehicle is worth.
- Compare total of payments across each term.
- Check whether the APR rises for longer terms.
- Avoid choosing a vehicle only because an 84-month payment fits.
Questions to ask before accepting an APR
- Is this the lender's approved APR?
- Does this rate require any optional product?
- Can you show me the amount financed and total of payments?
- Can I compare a shorter term using the same down payment?
An APR estimate is not an approval. Only a lender can provide final credit terms.