Does a car loan charge compound interest?

I've read that some loans are compound interest and some are simple interest. Which one is true for a car loan?

Answer
Car loans charge simple interest instead of compound interest, which saves you money in the long run.
Simple interest calculates the amount of interest you pay based solely on the amount of the principal loan. This is in contrast to compound interest, which charges interest based on both the principal and the amount of interest accrued over time. As a result, you’ll pay less on a loan with simple interest than that with compound interest.
If you want to get a more accurate idea of how much interest you pay each month and over the life of the loan, ask your lender for an amortization schedule, which shows how your principal and interest change over time.
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Eric Schad
Answered on Nov 24, 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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