Why Car Dealer Rates Are Not the Full Story
When a dealer advertises "3% financing," that rate is typically applied to the original loan balance as a flat fee — not the true compound cost. Because you pay down the principal each month, the actual money still owed shrinks. APR captures this reality: it is the compound annual rate that makes your payment schedule exactly balance the loan. It is always higher than the simple stated rate.
This calculator uses a Newton-Raphson numerical method to find the exact monthly rate, then converts it to an annual APR. Plug in both offers from competing dealers and compare the APRs side by side — the number with the lower APR always costs less over the full term, even if one has a lower monthly payment.
Frequently Asked Questions
Not usually. Dealers or manufacturers often roll the interest cost into the vehicle price or reduce rebates. Compare the 0% financed price against the cash purchase price with any available rebate to see the true cost difference.
As of 2025, new car APRs typically range from 5% to 9% for well-qualified buyers, depending on credit score and term. Rates above 12% are worth scrutinizing carefully.