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What does simple interest mean on a car loan?
I'm interested in getting a car loan, but I'm not entirely sure how interest works. What does simple interest mean and how is it calculated on a car loan?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Not many people are interested in interest (get it?), but it’s a great concept to understand before you enter into a
car loan
. Simple interest is the way that lenders calculate interest on a loan, and is calculated solely based on the amount of principal on your loan.This is in contrast to compound interest, which calculates total interest based on both the principal and accrued interest.
If you want to know how much interest you’re paying, ask your lender for an amortization schedule, which shows the principal and interest paid each month throughout the duration of the loan. If you’re still in the preapproval process or you haven’t selected a car, you can always use an online car loan calculator to find a mock amortization schedule based on your interest rate, principal, and the length of the loan.
And since you’re clearly interested in saving money on interest, you may want to consider shopping around for both your car loan rate and your car insurance. For quick car insurance quotes in less than a minute,
Jerry
has your back. We’ll get you personalized quotes from top providers, so that all you need to do is pick the plan that works best for you—and once you find one you like, we’ll even help you switch.Hope this helps!
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- Gregory R.
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