How is interest paid on a car loan?

I just got a car loan for a new Volvo and I’m just a little confused about the interest part. How is interest usually paid on a car loan?

Answer
Interest is usually the part of any loan that people are most unsure about—so don’t worry if you’re a little confused. In short, interest is the price you’re going to pay to borrow money from the lending institution.
Interest on car loans is included in your monthly payments. There are also two different types of interest to look out for simple interest and precomputed interest.
  • Simple interest is interest that you pay based on your last payment. Every month you will pay part of your principal amount plus any interest you’ve accrued since your last payment. If you make extra payments or pay off your loan early, you can save money.
  • Precomputed interest is an interest calculated at the start of your loan and doesn’t change. Since it’s predetermined, you wouldn’t benefit from paying extra or paying off your loan early.
If you review the interest on your loan and decide you aren’t happy with it, refinancing with the Jerry app is a great way to change it.
Jerry removes the hassle by instantly connecting you with top companies to meet your financial needs and ensures you’re not overpaying for your car loan.
Chloe Jenkins
Answered on Nov 24, 2021
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