What is a Simple Interest Loan?

Man and Woman Signing Papers

Purchasing your next new or used vehicle will most likely require you to take an auto loan. When choosing an auto loan, you’ll find that there are two main types of interest: compound and simple. With a compound loan, your interest is not only based on the principal, but the interest of the previous periods as well. Simply put, you end up paying interest on the interest. Meanwhile, simple interest is based on the principal only. This means you aren’t paying additional interest on your interest. How do simple interest loans work? Find out more below!



How Do Simple Interest Auto Loans Work?

How does a simple interest auto loan work? These loans are widely available and include car loans. When you finance a car with a simple interest loan and make a payment, the money is first applied to the interest on your account and then the principal balance. Simple interest loans are repaid in predetermined monthly payments. At the beginning of the loan, more of your monthly payment goes towards the interest. Once the interest dwindles, a larger portion of the payment is put toward the actual principal balance.

How to Calculate Simple Interest Rates on a Loan

Trying to figure out how to calculate a simple interest rate on a loan? Normally, your car loan interest is based on the principal and calculated daily. This daily interest is equal to the annual rate and then divided by 365 (or 366 during a leap year). For example, if you have a loan balance of $10,000 and a 3% interest rate, then your daily interest charge would be about $0.82.

What Are the Advantages of a Simple Interest Loans?

The main reason Portsmouth drivers choose simple interest loans is that they save the borrower money on interest. To further reduce the amount of interest you’ll pay on your loan, we recommend taking any of the following actions:

  • Make more than the minimum payment on your loan each month.
  • If able, consider making additional payments — not just once monthly.
  • Try to pay off your loan before the term ends. If you’re planning to take this step, make sure there are no penalties for early repayment.

Considerations for Simple Interest Loans

While opting for simple interest loans give Stratham borrowers the opportunity to save in interest, making payments on time remains important. As with many loans, if you make a late payment, you could end up being penalized with a fee and paying more in interest. This means a lesser portion will go toward your principal. While one late payment probably won’t be a big issue, repeated late payments could cause you to rack up fees and increase the time it takes to pay off your loan.

Learn More About Your Financing Options at Dover Honda!

Now that you know how simple interest auto loans work, speak with our finance center at Dover Honda about how to qualify! We can help you decide which car loan is best for your situation, and apply for financing!

More from Dover Honda

  • What Are the 2019 Honda Accord Safety Ratings?

    If you’re in the market for a reliable sedan in the Portsmouth and Rochester area, you not only want a durable model that can keep you going, but also one that has safety in mind. Thanks to the outstanding 2019 Honda Accord safety ratings, this popular Honda sedan has earned high marks for its handling…

  • 2019 Honda Accord Interior

    Bold and thoughtful, the alluring exterior of the Honda Accord is easy to understand when you witness it drive down Portsmouth streets, but what are the benefits of the 2019 Honda Accord interior features? The cutting-edge technology and ergonomic comfort of the Accord can be experienced in a test drive—feel free to schedule one—or can…

  • 2019 Honda CR-V Maintenance Schedule

    The Honda CR-V was built to survive everything Portsmouth streets throw its way, from errands to little league games and even road trips. However, the only way your CR-V will live its longest, happiest life is if you abide by the 2019 Honda CR-V Maintenance Schedule. Find out more about the maintenance plan for your…

Saved
Saved Vehicles ×

SAVED VEHICLES

You don't have any saved vehicles!

Look for this link on your favorites:

Save

Once you've saved some vehicles, you can view them here at any time.

Contact
Contact Us ×

800-263-9458

Call Now

1 Dover Point Rd • Dover, NH 03820

Get Directions

Today's Hours:

Open Today! Sales: 8am-8pm

Open Today! Service: 7am-7pm

[schema type="organization" orgtype="LocalBusiness" url="www.doverhonda.com" name="Dover Honda" description="" street="1 Dover Point Rd" city="Dover" state="NH" postalcode="03820" country="United States" email="Dheleads@iclautos.com" phone="800-263-9458" logo="https://di-uploads-pod2.dealerinspire.com/doverhonda/uploads/2018/01/thumbnail.png"]
Dover Honda
Dover Honda
1 Dover Point Rd
Dover, NH, 03820 United States
800-263-9458
https://di-uploads-pod2.dealerinspire.com/doverhonda/uploads/2018/01/thumbnail.png
Dover Honda 43.1757948, -70.8672731.