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?

Answer
Understanding 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!
But don’t forget about the other major car ownership expenditure: insurance. To find the best rate on car insurance from over 50 top-name providers, download the Jerry app.
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Eric Schad
Answered on Nov 10, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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