Vehicle Financing Methodology

Primary sources

The core source for auto loan APR and amortization disclosure is the Truth in Lending Act (TILA) as implemented by Regulation Z (12 CFR Part 1026). The CFPB's published commentary on Reg Z provides worked examples we use to cross-check our formulas.

For simple-interest amortization (the dominant structure for auto loans), we follow the actuarial method: each period's interest is the periodic rate multiplied by the outstanding principal. This is the method Reg Z §1026.17(c)(3) describes for disclosing the APR correctly.

APR formula derivation

APR is the internal rate of return that equates the present value of all scheduled payments to the amount financed, expressed as an annual rate. For a fixed-rate monthly loan, APR equals the monthly rate that solves the present value equation multiplied by 12 (not compounded — simple annual rate per Reg Z). For loans with financed fees, the amount financed is reduced by those fees before solving.

We validate our APR output against the Federal Reserve's published APR estimation tables (Appendix J to Reg Z) for sample loan sizes. Any deviation >0.01% triggers a formula audit.

Edge cases handled

Odd first periods (first payment not exactly one period after disbursement): we use the US Rule method as specified in Appendix J. Balloon payments: the balloon is treated as a final payment in the amortization schedule. Zero-interest dealer financing: we note APR = 0% is valid if no finance charges exist, consistent with Reg Z §1026.4.

Limitations

State-level usury caps are not modeled — your state may prohibit APRs above a certain threshold. Prepayment penalty formulas vary by lender. GAP insurance premiums may be included in the financed amount per some lenders — we treat them as optional inputs. This calculator is for education, not lending disclosure.

Update protocol

This category is reviewed quarterly. Immediate updates are triggered by changes to the primary source documents listed in the citations above — rate table revisions, new agency guidance, or regulatory amendments.

Error reports go to info@bedrockatools.com. Corrections are published on our corrections page.