That’s a good question! The best way to describe interest is *an annualized percentage that equates to how much money you owe on top of the lump sum.
Generally, most car loans are simple interest loans. They’re on an amortization schedule, meaning the more you pay off, the less interest you’ll pay over time.
The other type of interest for car loans is precomputed. If your car loan is precomputed, the amount of interest you pay is calculated at the beginning of your loan term. Since the interest is built into your monthly payments, you typically won’t save any money by making early or extra payments.