Auto Loan Interest & APR Explained: Simple Interest vs Precomputed Rate
Understand simple interest calculations on auto loans, credit tier APR matrices, monthly interest compounding, and precomputed loan risks.
By Sarah Jenkins, CFA
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Reviewed by David Vance, CFP
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5 min read
Simple Interest vs Precomputed Interest
Over 95% of reputable auto loans use simple interest, where monthly interest is calculated based on the daily remaining principal balance. This rewards borrowers who make extra principal payments or pay off their car loan early.
| FICO Credit Tier | Credit Rating | New Car Benchmark APR | Used Car Benchmark APR |
|---|---|---|---|
| 780 – 850 | Super-Prime | 4.99% – 6.49% | 6.99% – 8.49% |
| 660 – 779 | Prime | 6.50% – 8.99% | 8.50% – 11.49% |
| 500 – 659 | Subprime | 12.00% – 18.99% | 15.00% – 24.99% |