**APR: Acronym for Annual Percentage Rate. The Effective Annual Interest Rate. The actual amount of interest for each year. You should be able to get a basic understanding from Wikipedia for Annual Percentage Rate and Nominal Interest Rate.

You will have to be sure you are using the right interest rate so that the calculations are correct for your situation. See the following explanation.

A loan with a Nominal Interest Rate of 7% compounded monthly will have a higher Effective Annual Interest Rate than a loan with an APR of 7% compounded monthly.

• If the Nominal Interest Rate (also known as the "Stated Rate") for your loan is stated as 7% compounded monthly then the APR will be about 7.22%. A nominal interest rate of 7% will become 7%/12 months = 0.583%/ month (0.07/12 months = 0.00583/ month). Compounding monthly (1 + 0.00583)^12 = 1.0722 which becomes 1.0722 - 1 = 0.0722 = 7.22%.
• If the APR for your loan is stated as 7% compounded monthly then the APR will be 7%. An APR of 7% will become 12√(1 + 0.07) = 1.00565 or 1.00565 - 1 = 0.00565 = 0.565%/ month. Compounding monthly (1 + 0.00565)^12 = 1.07 which becomes 1.07 - 1 = 0.07 = 7%.
• For more detailed information on loan and investment formulas see this good practical treatment by Stan Brown at Oak Road Systems: http://oakroadsystems.com/math/loan.htm

Note: This calculator will compute an auto loan's effective monthly interest rate, monthly payments, total number of payments, total paid on the loan, total interest paid on the loan and interest as a percentage of the principal loan amount based on the cost of the auto, the APR and the term of the loan in months.

Free online calculator for auto loans