What does APR mean for a car loan?—Learn more about Mazda financing at Prime Mazda Norwood

When you get a car loan for a new Mazda, interest is what the lender charges to cover the cost of the vehicle upfront. However, the interest rate doesn't tell you everything you need to know about the loan's actual cost. For that, you need to find the APR, or "annual percentage rate."

What's the difference between APR and interest rate?

While the interest rate is the amount you pay to borrow money from the lender, the APR indicates the interest for a whole year, and includes all fees, such as the origination fee (the payment associated with establishing the loan account) and prepaid finance charges. This distinction makes APR a more accurate reflection of the cost of financing a vehicle.

How is APR calculated?

The most accurate way to get your APR is to simply ask the lender. The Truth in Lending Act dictates that loan issuers must provide all loan details, including the APR, before the borrower signs the agreement. Therefore, the APR will be clearly stated in the contract and also pointed out by the finance representative. Additionally, you can typically find APR in the small print on advertised lease specials. However, it's possible to estimate the APR yourself if you know the loan amount, the term length, the interest rate, and any other fees associated with the loan.

First, you need to find your total monthly payment, including the standard interest rate. If you don't know it, you can calculate it yourself. Since the total loan amount changes with every payment you make, it's easiest to use a spreadsheet program like Microsoft Excel or Google Sheets. Just type the following into any spreadsheet cell:

=PMT(interest rate as a decimal/12, number of months in loan term, loan amount with fees)

For example, imagine you want to finance $20,000. The documentation fee is $495, the term length is 60 months, and the interest rate is 2.0%. Then, you would enter the following into any spreadsheet cell:

=PMT(.02/12,60,20495)

In this example, the total monthly payment would be $359.23, expressed as a negative number (or in red). This is important, as the formula for APR will use -$359.23. Now, you can use the following formula to calculate your APR:

=RATE(number of months in loan term, estimated monthly payment, value of loan minus fees)*12

Using our example above, you would enter:

=RATE(60,-359.23,20000)*12

The APR is 0.0298, or 2.98%. You can now compare this rate side-by-side with other lenders, which can help you pay less to finance a vehicle.

Explore current lease offers near Dedham, Westwood, and Braintree

Reach out to Prime Mazda Norwood today to learn more about financing a new Mazda and the latest special offers. Now through August 2, you can purchase a 2021 Mazda CX-30 2.5S at 0.9% APR financing for up to 63 months1 or a 2021 Mazda6 Sport at 0% APR2. And if you'd like to get behind the wheel to try out a new Mazda for yourself, we welcome you to visit us here in Norwood for a test drive. We'll be happy to assist you.

10.9% APR financing for 63 months at $16.26 per month per $1,000 financed. Must finance through Mazda Financial Services. On approved credit. Security deposit waived.
20% APR financing for 63 months at $15.87 per month per $1,000 financed. Must finance through Mazda Financial Services. On approved credit. Security deposit waived.
Source: blog