Is car loan interest ever compounded?

I always like to know exactly how much I'm paying for things. I've read that car loans use simple interest, but is there ever a time when car loan interest is compounded?

Answer
Car loans use simple interest, so the amount of interest you pay is never compounded. Instead, the interest is based 100% off the principal on the loan. As you pay more money toward the loan, the amount paid toward interest goes down and the amount paid toward the principal goes up.
This is in stark contrast to a loan with compound interest, which is based on interest and the amount of interest accrued on the loan itself. In a compound interest loan, you end up paying more money over the life of the loan compared to simple interest.
If you want to see how much interest you might pay over the life of the loan, ask for an amortization schedule from your lender or find one online. This will show exactly how much money goes toward the principal and interest every month throughout the entire life of the loan.
And if you want to see that interest and principal amount go lower even quicker, you might want to take a glance at your car insurance. Use the number-one-rated car insurance app, Jerry, to find the lowest rates and help you save money on car insurance. The average Jerry driver saves $879 a year on car insurance!
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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