Apply for Instant Loan

Download Our App

Apply for Instant Loan

Download Our App

Play Store

Apply for Instant Loan

Download Our App
Arrow Arrow

Everything You Need to Know about APR for a Car Loan

apr for car loan

In a world full of imperfections, if you are seeking something perfect, then how about discovering something ideal about your new or used car loan? Have you figured out the answer already? Yes, we are talking about the ideal APR for a car loan. If you are looking to buy a car with a loan, you will find this post quite helpful. Because today, we will consider all the factors that go into determining the good APR on a car loan. But before that, let us look at what it means.
 

What does APR for a Car Loan Mean?


If you are unsure about the difference between APR and interest rates, you will be surprised to learn that interest is not the only cost of a car loan. The APR or Annual Percentage Rate considers the interest rate as well as any other expenses involved with your second-hand car finance APR includes costs such as processing fees, legal charges, and rescheduling charges (if any), among others. It is the ideal metric for calculating the overall cost of borrowing money over a year.

When peeking at the cost of a used car loan, it is crucial to contemplate not just the nominal car loan interest rate but the APR as well.
 

How do I Know What Exactly my Car Loan APR is?


It's easy to figure out your APR on a car loan. When your lender provides you with a loan sanction letter, you can find out the APR in two ways. 

 

  • Ask Your Lender

    Never be afraid to ask a lender any questions about your loan. If you have any queries concerning the processing fee, legal fees, or other costs, talk to your lender.

  • Estimate Yourself

    In case you have loan documents in hand, you can easily calculate the APR by using an APR for a car loan calculator. 


How do I Calculate APR for a Car Loan


To calculate APR for a car loan, you can either use an APR for a car loan calculator or can use a mathematical formula to calculate it manually. 
 
The mathematical formula for used car loan APR is as follows,
 
[{(Fees + Interest)/ Principal}/ n] 365*100
 

Why is my APR so High?


If you are concerned that your APR is too high, then consider checking and working upon the factors that could be adversely affecting your APR. Some of them are:
 

  • A Low Credit Score

    Investigate your previous loan files and check how many times you have missed EMI payments. If you locate one, start building your credit score by paying your EMIs on time. 
 

  • High Existing Debt

    If you are already burdened with too many loans, your lender is likely to charge a higher APR car loan. Having a high debt-to-income ratio makes your profile riskier due to which you cannot get a lower rate used car loan.
 

  • Type of Car

    Your lender may decline your loan application or impose a higher APR on a car loan if the used car you are buying is fairly old and in poor working condition. Also, if you intend to purchase a four-wheeler that is essentially a discontinued model or a car from a manufacturer that has ceased operations in India, you may face loan rejection or get funding at a higher APR.

Also Read:Looking for a Budget-Friendly Used Car? Here are Top 5 Options under Rs. 10 lakhs
 

How do I Get a Lower APR on a Car Loan?


If you are wondering what a good APR rate is, or if you are looking for ideas and ways to get the best APR on loan on a second-hand car, find answers to the following questions:
 

  • Improve your Credit score

    If you don't want to get into trouble with high used car loan interest, check your credit score before moving ahead with the loan. It can assist you in determining the average interest rate you may be eligible for, allowing you to budget properly. If you have a low credit score, you must first work on improving it by foreclosing your high-interest debts, monitoring your credit utilisation ratio, and avoiding filing multiple loan applications with different lenders at the same time.
     

  • Choose your loan term

    In most circumstances, APR operates in the same way as interest rates on a car loan do. Longer loan tenure comes with a higher average APR for a car loan. So, to lower the interest rate on a car loan, opt for a shorter tenure.  However, keep in mind that doing so will increase your EMI burden. You should also use an APR calculator, try different combinations of payback tenure and loan amount to arrive at the most optimum EMI with the least amount of interest burden.
     

  • Buy a certified car

    If the used car you are buying still has a warranty attached, your lender is more likely to offer you a lower APR for a car loan. Additionally, purchasing a car from a reputable dealer boosts your chances of qualifying for a lower APR car loan. Another factor that assures lenders of a lower likelihood of default is insurance. It safeguards you financially from hefty repairs charges.
     

 

To Avail Used Car Loans
Apply Now

Do you have all the necessary documents?


Having proper KYC documents can help you get instant approval. Above all, what matters most are your car-related papers. Make sure that the seller provides you with the original Registration Certificate; this ensures that the vehicle is not stolen. Request a road tax receipt and make sure it is properly paid. You must also examine the insurance and service record book to determine the nature of the repairs. Obtaining a low APR on a used car loan is not difficult if each document is satisfactory.
 

Why is Calculating Car Loan APR Important?


Taking a loan without knowing the actual or overall cost can dent your budget in the long run. The Annual Percentage Rate on a car loan is critical since it determines how much a used car loan from a financial institution will cost you. You will have to spend less to finance your car if the APR is low. 

When comparing used car loan interest rates with different lenders, make sure you are paying thorough attention to the APR as well. Even a 1% difference in the APR has the potential to significantly increase your debt burden. That is why, it is important to check the APR along with the interest rate on the loan.
 

To Conclude


Now that you are familiar with APR for a car loan, you can easily find out the good APR for a car. Always keep in mind that interest rates and costs differ from one lender to the next. That is why, before deciding on a used car loan, you must research and compare quotations with different financial institutions. 
 
Disclaimer: This post was first published on 3rd September 2022 and has been updated for the latest information, freshness and accuracy.

 


To Avail Used Car Loans
Apply Now
Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

Exclusive deals

Subscribe to our newsletter and get exclusive deals you wont find anywhere else straight to your inbox!