When you’re shopping for a new or used car around Moultrie and you take out a loan, you have to pay interest on it. Interest means you’re paying for borrowing the money – it’s usually a small percentage of the principal loan amount. There are also different types of interest you can accrue: compound and simple interest. With compound interest, your interest grows based on what you’ve been paying previously in interest. It’s like you’re paying interest on the interest. With simple interest, you’re only paying interest on the principal loan. How does simple interest with auto loans work? Valdosta Nissan has everything you need to know!
If you’re wondering how to calculate a simple interest rate on a loan, it’s quite easy. You can determine car loan interest based on the principal loan amount – take the percentage interest rate, multiply it by the loan balance, then divide by 365. For example, a loan balance of $10,000 and an interest rate of 3% (0.03) would come to a daily interest rate of $0.82. So you would be paying $0.82 a day to take out a $10,000 loan on your car.
When you take out a loan with simple interest, it’s paid in predetermined monthly payments. Your payments initially go towards paying off the interest, then towards paying off the actual loan balance later.
There are plenty of advantages to taking out a simple interest loan. Compared to compound interest, simple interest loans save Thomasville drivers a lot of money. You can reduce the amount of interest on your loan through the following actions:
Although you save money each month with a simple interest loan, it’s still essential to make payments on time. Late payments could result in you having to pay more in interest, which means less of your monthly payment will go towards the principal loan balance. It’s usually not a big deal to accidentally pay one payment late, but repeated late payments will affect your interest rate. You may also have to pay added late fees on top of more interest, so take care to make your payments on time!
If you have any questions about simple interest loans, check out our finance center for everything you need to know about financing your car. You can also contact our office anytime or stop by our dealership near Hahira to check out our inventory!
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