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What is an interest-bearing loan?
I’m looking into buying my very first car and I’m a bit confused about all of the loan and financing jargon. I keep seeing the term “interest-bearing loan” but I don’t know what that means.
Shannon Fitzgerald · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
An interest-bearing loan is any loan when the interest is charged based on the principal amount borrowed. This means you’ll pay back the debt in increments, in addition to an agreed-upon interest rate. In general, most auto loans are interest-bearing loans.
Your interest payments will be one of two types: simple interest or compounded interest. You calculate simple interest by multiplying the principal by the daily interest rate by the number of days between payments. This is what your car loan will typically use.
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