Are all car loans simple interest?

I’ve never had a car loan before, but I’m currently shopping for one. Before I get approved, I want to make sure I understand all the different loan-related terms. I read that car loans are an example of simple interest. What does simple interest even mean? And are all car loans simple interest?

Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
car loan
terminology and how loans work is a savvy move that can streamline the loan process! The good news is that all car loans are simple interest, which makes comprehension easier.
A simple interest car loan means that the interest you pay each month is based on the principal balance on the payment due date. Simple interest also dictates that the interest paid is front-loaded. This means that you will pay the most in interest on your first payment and less each month until your final payment.
For a better visual, you may want to grab an amortization schedule. An amortization schedule is a table that shows how your car loan payments break down from month to month. Each payment date on the table shows how much of your payment goes toward the principal and the interest for the entirety of the loan.
You can ask your lender for a schedule or do a quick Google search for car loan amortization schedule to find one online. Hopefully, this will help you understand how car loans work a bit better!
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MORE: How to calculate total interest paid on a car loan
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