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What Is A Simple Interest Loan? | Capital One

What Is A Simple Interest Loan? | Capital One

All sorts of people take out car loans
to buy themselves a new set of wheels, but no matter who you are, if you
understand how your loan works and make informed decisions, not only will you
enjoy peace of mind but you can also save time and money. One type of loan is
a simple interest loan, which is used for most car loans. It's also the type of
auto financing that Capital One offers. So how does a simple interest loan work?
When you borrow money, you have to pay back the principal which is the actual
amount you borrow, as well as the interest. This is the cost for borrowing
the money. This is done through fixed monthly payments over the term of your
loan. When you first start making payments a higher percentage of your
fixed monthly payment will go towards the interest and whatever's left over
then goes to the principal however if you make full and scheduled on-time
payments every month and increasingly higher percentage will be applied to the
principal and less to interest each month until it's ultimately paid off
here's why that is the interest is calculated against your loans
outstanding principal at the beginning of the loan the principal balance is
large therefore so is the interest see but as time goes on and you start paying
down your principal the amount of interest you pay every month goes down
with it more and more of your fixed payment will go towards the principal
rather than interest until your loan is eventually paid off it's also important
to understand with a simple interest loan the interest accrues daily based on
your outstanding principal balance and because the interest accrues daily when
you make your payment really makes a difference if you make a monthly payment
exactly on your due date you'll pay the exact amount of interest that you
originally planned however if you make a payment before your due date less
interest will accrue remember it adds up David so more of your fixed payment will
go towards the principal but if you make your monthly payment late more interest
will accrue so more of your fixed payment will go toward the interest
ultimately making just one or two early or late payments may not make a huge
difference in the amount of interest you're paying but if you get in the
habit of paying late you can paying a lot more in interest than you
originally planned but if you get into the habit of paying early you'll save
money and you could even pay off your loan sooner than expected
which would be cause for celebration maybe you could use the money you save
an interest to reward yourself with something that you'll really love see
simple interest loans really can be well pretty simple

What Is A Simple Interest Loan? | Capital One


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