Are you searching for an auto loan where you have permission to make similar payments monthly for a stipulated loan duration until you have fully repaid the loan? Then, what you need is a simple interest car loan.
If you’re in need of quick funds to assist you in a car purchase, a simple interest might be the way to go.
What is a simple interest car loan?
Have you asked yourself, “What is a simple interest car loan” and wondered how it can assist you?
Basically, simple interest loans happen to be one of the most widely known kinds of car loans. The name of this loan is derived from how interest rates are calculated. It is the principal balance you owe with the exception of interest that is used to calculate it.
With compounded interest, it involves the payment of simple interest and interest on what is owed. When you take a look at the auto loan, you will get to notice that the loan that you took out is called simple interest auto loans.
This kind of loan is actually very good when it comes to car loans. For pre-computed loans, you will hardly find them in use, and you must avoid them at all costs.
One key point to keep in mind is that a simple interest car loan is a form of loan where the interest is computed in relation to the principal balance that is left on the loan. Therefore, this in no way causes the balance on the loan to grow.
When you acquaint yourself with the way in which a simple interest auto loan works, it can prove to be very useful for you. This is especially true when searching for an auto loan and when repaying the loan.
This could be a key factor in helping you to improve your savings. There are many car lending companies just like Car Loans of America that offer you simple interest auto loans. To understand how it works, continue reading below.
Understanding Simple Interest Auto Loans
A simple interest auto loan is a kind of loan where the interest is computed in relation to the principal balance that is left on the loan. It does not compound in any way, and this means that the loan balance will not increase based on interest.
Also, there is no increase in how much interest is to be paid every month. In the event that you make a late payment or you entirely miss your payments, the interest that was missed is not included in the balance of the loan. Also, you will not have any extra interest computed based on the new increased balance.
Therefore, a simple interest auto loan is very different from a compounded interest loan. When it comes to simple interest car loans, it is the outstanding balance that is left on the entire loan which is used to compute how much interest is to be paid. As you continue to make your payments every month, the balance will continue to decrease which will cause the interest that you pay to decrease as well.
Amortizing Loan Balance
You can also refer to simple interest car loans as amortizing loans. What this implies is that for every payment that is made, a portion is used as a payment on the loan balance which causes it to decrease.
As soon as you have completed all the required payments, you will have fully settled the loan. The reason that the lender computes the loan payment is to get the auto loan completely amortized within a specified number of payments.
The specified level of payments, requirements on the simple interest and full amortization all come together in the calculation of simple interest auto loans. This makes it look quite a bit complex! But, you can make use of our Car Loans of America loan calculator to determine what your simple interest auto loans payments will be.
Simple Interest Auto Loans Come With Two Basic Parts
As a way of summarizing what has been stated above, your simple interest car loans will come with two basic parts which are:
- The Principal – this refers to the total amount that was used to finance the purchase of a vehicle
- The Interest – this refers to the service charge that you pay to the lender for borrowing the principal.
This kind of loan has the interest computed every day in relation to the principal balance. Therefore, at first, the Principal is usually higher, and you get to make more interest payments. However, as you continue to pay the principal, it causes a reduction in the amount of interest that you have to pay.
Since the interest is completed on a daily basis, your ability to pay on the date that has been scheduled implies that you’ll end up paying the exact amount which has been stipulated in the agreed contract.
Simple interest auto loans give you an avenue of increasing your savings as you repay the loan. This way, the potential of settling the loan faster is higher.
How to Save On Your Simple Interest Auto Loan Payments
In order for you to save while paying off the simple interest auto loans, here are three steps that you can apply –
- Ensure that you pay early. The monthly payment can be made even before the arrival of the specified date. You can do this when you have accrued lesser interest. It’ll help to channel more of the payments that you make to the outstanding principal. This is better than waiting for the scheduled date to make your payment.
- Make payments more often. It is important that you make regular payments! One of the ways you can do that is to divide your monthly payments equally into two parts. You can now pay twice a month. This can help to reduce the amount of interests being paid. Ensure that you time your payments as this will help you to meet up with the monthly payment requirements.
- Try to form a habit of paying extra. You can top up the payments that you make every month. Doing so will help you to repay your loan faster. That then translates into interest cost savings!
Avoid Late Payments on the Simple Interest Auto Loan
On getting approved to receive a simple interest auto loan, you will be immediately aware of the amount that is to be paid every month. You’ll also be given an amortization schedule which points out to you the fraction of the loan. It’s then channeled towards the principal and interest.
Payments that you are to make every month is fixed. Getting to miss a payment does not imply that you will pay a higher interest in the subsequent month.
However, there’s a tendency that you will be charged a fee for making late payments by your lender.
If you continue to make late payments, a greater proportion of your payment will be channeled towards late fees. Or, you stand the risk of having to pay a very large amount once your contract comes to an end. Apply the tips outlined above in order to save on your simple interest auto loan!
Car Loans of America provides simple interest car loans, and you can easily apply for one online. It doesn’t take long to get approved once your application is reviewed.