Simple Interest Car Loans: How They Work
Here at Joe Bowman Auto Plaza, we only have simple interest car loans for both our used car inventory as well as our new car inventory. We think this is the fairest way for our customers to buy a new vehicle.
In this article, we’ll break down how a simple interest loan works and why it is the best approach to new and used car buying.
What Is a Simple Interest Loan?
Simple interest loans are based solely on the principal amount borrowed. You’ll pay interest on your predetermined monthly payment that’s a percentage of the loan amount, or principal.
What’s the Difference Between Simple Interest and Compound Interest?
Compound interest means you pay interest on the interest. For example, savings accounts have compound interest which allows the depositor to earn interest on the initial principal plus on interest that accrues over time.
This is advantageous as it grows your money. It is not advantageous as a means for borrowing money.
How Does a Simple Interest Car Loan Work?
Your set monthly payment includes interest based on the original borrowed sum. Each time you make a car payment, a bigger portion of the money goes to pay the interest first, then to the principal.
That means at the beginning of your loan term, payment amounts are weighted more towards paying the interest first. Towards the end of your loan term, there is far less interest to pay so more of your payment goes towards the principal.
How Are Simple Interest Car Loans Calculated?
For most simple interest car loans, the interest is calculated daily based on the principal amount. The annual rate is divided by 365 days, or for leap year, 366 days.
For example, if your loan amount is $25,000, with a 48-month term, and an interest rate of 4%, the approximate interest you will pay on the first month of your loan will be $83 per month. The principal amount will be $481.
As the months go by, you will eventually pay less interest and a little more on principal.
By the last month of your loan term, you’ll pay only an estimated $2 in interest and $563 on the principal.
Why Does My Interest Payment Fluctuate on My Car Loan?
With simple interest car loans, the interest you owe is based on the loan balance on your payment due date. The amount of money applied to the principal each month changes because the loan is amortized.
That simply means that the principal amount goes down with each monthly payment you make. So, the interest you owe will change accordingly.
What are the Benefits of a Simple Interest Loan?
Simple interest loans allow you the flexibility of paying additional money on the principal.
The quicker you can pay down the principal amount the less interest you pay over the life of the loan. Additionally, you can pay off the loan before the term ends without penalties.
As long as you make timely monthly payments, simple interest loan financing helps you save money over the life of the loan. Late payments will cost you more in fees and in the repayment of the loan.
Are There Any Factors That Affect My Car Loan Interest Rate?
Yes. Consumers with good credit scores typically qualify for lower interest rates than those with lower credit scores.
According to Experian’s State of the Automotive Finance Market report, for the first quarter of 2020, average interest rates on new car loans for high credit score consumers was an average of 11 points lower.
In the world of finance, good credit is everything! Protect it to get the best interest rates for anything you decide to buy.
Flexible Auto Loan Financing with Joe Bowman Auto Plaza
When you’re ready to buy either a quality pre-owned vehicle or a new Chevrolet from Joe Bowman Chevy, not only will you enjoy a simple interest car loan, but you can also shop from the comfort of your own home with our Shop. Click. Drive program.
You can also estimate your trade-in value and monthly payments. Our Harrisonburg dealership finance department can help you structure a simple interest loan and terms that work for you.
Our rates are highly competitive and our in-house process is quick and easy, allowing you to take ownership of the vehicle more quickly.
Or, if you prefer, you can finance through your own lender. We can easily work with you. It will take just a little longer for us to process your lender’s paperwork.
Experienced Auto Leader
When you’re ready to buy, turn to the pros at Joe Bowman Auto Plaza. Our experienced sales consultants will help you find the right vehicle for your lifestyle and budget.
In this article, we’ll break down how a simple interest loan works and why it is the best approach to new and used car buying.
What Is a Simple Interest Loan?
Simple interest loans are based solely on the principal amount borrowed. You’ll pay interest on your predetermined monthly payment that’s a percentage of the loan amount, or principal.
What’s the Difference Between Simple Interest and Compound Interest?
Compound interest means you pay interest on the interest. For example, savings accounts have compound interest which allows the depositor to earn interest on the initial principal plus on interest that accrues over time.
This is advantageous as it grows your money. It is not advantageous as a means for borrowing money.
How Does a Simple Interest Car Loan Work?
Your set monthly payment includes interest based on the original borrowed sum. Each time you make a car payment, a bigger portion of the money goes to pay the interest first, then to the principal.
That means at the beginning of your loan term, payment amounts are weighted more towards paying the interest first. Towards the end of your loan term, there is far less interest to pay so more of your payment goes towards the principal.
How Are Simple Interest Car Loans Calculated?
For most simple interest car loans, the interest is calculated daily based on the principal amount. The annual rate is divided by 365 days, or for leap year, 366 days.
For example, if your loan amount is $25,000, with a 48-month term, and an interest rate of 4%, the approximate interest you will pay on the first month of your loan will be $83 per month. The principal amount will be $481.
As the months go by, you will eventually pay less interest and a little more on principal.
By the last month of your loan term, you’ll pay only an estimated $2 in interest and $563 on the principal.
Why Does My Interest Payment Fluctuate on My Car Loan?
With simple interest car loans, the interest you owe is based on the loan balance on your payment due date. The amount of money applied to the principal each month changes because the loan is amortized.
That simply means that the principal amount goes down with each monthly payment you make. So, the interest you owe will change accordingly.
What are the Benefits of a Simple Interest Loan?
Simple interest loans allow you the flexibility of paying additional money on the principal.
The quicker you can pay down the principal amount the less interest you pay over the life of the loan. Additionally, you can pay off the loan before the term ends without penalties.
As long as you make timely monthly payments, simple interest loan financing helps you save money over the life of the loan. Late payments will cost you more in fees and in the repayment of the loan.
Are There Any Factors That Affect My Car Loan Interest Rate?
Yes. Consumers with good credit scores typically qualify for lower interest rates than those with lower credit scores.
According to Experian’s State of the Automotive Finance Market report, for the first quarter of 2020, average interest rates on new car loans for high credit score consumers was an average of 11 points lower.
In the world of finance, good credit is everything! Protect it to get the best interest rates for anything you decide to buy.
Flexible Auto Loan Financing with Joe Bowman Auto Plaza
When you’re ready to buy either a quality pre-owned vehicle or a new Chevrolet from Joe Bowman Chevy, not only will you enjoy a simple interest car loan, but you can also shop from the comfort of your own home with our Shop. Click. Drive program.
You can also estimate your trade-in value and monthly payments. Our Harrisonburg dealership finance department can help you structure a simple interest loan and terms that work for you.
Our rates are highly competitive and our in-house process is quick and easy, allowing you to take ownership of the vehicle more quickly.
Or, if you prefer, you can finance through your own lender. We can easily work with you. It will take just a little longer for us to process your lender’s paperwork.
Experienced Auto Leader
When you’re ready to buy, turn to the pros at Joe Bowman Auto Plaza. Our experienced sales consultants will help you find the right vehicle for your lifestyle and budget.
