Related: Car Affordability Calculator Precomputed interest on a car loanĬar lenders also sometimes use something called precomputed interest.
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In fact, the simple interest calculation can save several hundred dollars over the full term of the loan. The good news is that simple interest results in a lower interest charge over the life of the loan. Simple interest is calculated based only on the principal balance outstanding on the loan. That means that as your interest balance increases with each day that the loan is outstanding, interest is also charged on that balance. What’s the difference between compound interest and simple interest?Ĭompound interest is charged on both the principal and accrued interest amount. Many car loans, however, compute interest differently-they charge simple interest. Most loans (for example, a mortgage or a student loan) charge compound interest.
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