Why does the amount going towards my principal on my car loan fluctuate month to month?
I've noticed that the amount going towards my principal ranges from $196 to $212 and it fluctuates each month. Why is this happening?
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Answered on Mar 25, 2021
“Car loans typically use a simple-interest format, meaning that the interest you owe on the payment date is based on the principal on that same day. However, the amount going toward your principal changes every month because a simple-interest car loan is amortized. This essentially means that as you pay off your loan, the principal goes down, and the interest you pay is based on this principal.
For example, your very first car loan payment will also have the highest interest payment because your principal is at its highest (this is also known as a front-loaded loan). Each month, more money will go toward the principal and less toward interest until you completely pay the principal off. “
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