What Is Simple Interest? 

 

Simple interest is a method of calculating the interest charge on a loan. Your automobile loan with U.S. Auto Servicing is a simple interest loan. The interest on your loan, and all simple interest loans, is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. 

KEY TAKEAWAYS 

  • Simple interest is calculated by multiplying the daily interest rate by the principal, by the number of days that elapse between payments. 

  • Simple interest benefits consumers who pay their loans on time or early each month. 

  • Auto loans and short-term personal loans are usually simple interest loans. 

 

Who Benefits From a Simple Interest Loan? 

Because simple interest is calculated on a daily basis, it benefits consumers who pay their loans on time or early each month.  If you pay early every month, your principal balance shrinks faster, and you pay the loan off sooner than the original estimate. 

Conversely, if you pay late, more of your payment goes toward interest than if you pay on time or early.  If you consistently pay late over the life of a loan, your final payment will be larger than the original estimate because you did not pay down the principal at the expected rate. In short, delinquent payments end up causing you to pay more.

 

 

 

 

 

 

 

 

 

Source: James Chen. “Simple Interest.” Investopedia.com, Investopedia is part of the Dotdash publishing family. https://www.investopedia.com/terms/s/simple_interest.asp 02.25.2021.