Are car loans an example of simple interest?

I've been trying to get my finances more organized and understand how they work. Is a car loan simple interest? Or is it compound interest?

Answer
Knowing the terminology behind a car loan is always a good idea. Car loans are an example of simple interest, meaning you pay interest on the amount you borrow.
On the other hand, compound interest requires you to pay interest not only on the principal, but also on the amount of interest accrued during the life of the loan. For example, credit cards are the most popular type of compound interest loan.
If you want to learn more about how your interest is calculated or how much interest you’re paying each month, ask your lender for an amortization schedule. This will show your principal and interest payment amounts for every month over the life of the loan.
While you’re brushing up on your car terminology, don’t forget to shop for an affordable car insurance policy. Use the Jerry app to compare dozens of competitive quotes for free.
Eric Schad
Answered on Oct 26, 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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