What Is A Simple Interest Auto Loan? Indianapolis, IN

When it comes to financing your next vehicle, there are several different routes you can take. One of the most popular options that drivers in Indianapolis, Fishers, and Speedway take advantage of is taking out an auto loan.

However, what some people might not realize is that there are several different types of auto loans, including simple interest auto loans. In this guide, we at Andy Mohr Speedway Chevy will give you a detailed overview of what these loans are, how they work, and much more. Read ahead to learn more about simple interest auto loans!

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WHAT A SIMPLE INTEREST AUTO LOAN IS 

A simple interest auto loan is a loan that earns interest based on the outstanding principal balance you have left to pay on your loan. This means that the interest rate will be calculated based on the principal that you still owe rather than the whole loan that you had taken out to begin with.

With a simple interest loan, the interest rate doesn’t compound itself over time. Due to this, your interest rate will get lower as you make payments while your principal payments get higher and you get more of your loan paid off each time.

Simple interest auto loans are categorized as an amortizing loan, which means that a portion of each of your monthly payments will go towards both the principal balance and the interest. Every time you make a payment, you’ll be chipping away at both parts of what you owe.

 

LATE PAYMENTS ON YOUR SIMPLE INTEREST LOAN

Since simple interest auto loans are structured the way that they are, your payments will not go up, even if you miss or delay a payment. Though this is not good practice for maintaining your credit score, it’s a good safety net just in case.

Rather than jacking up the interest rate on your loan, most lenders will tag on a flat rate late fee to your principal. Like your simple interest auto loan, this fee will need to be paid off before the title of the vehicle can be issued to you by the dealership.

 

HOW THESE LOANS COMPARE TO OTHER LOANS

The main difference between simple interest auto loans and other auto loans is the fact that they don’t compound. When other loans compound their interest, it not only ends up costing you more per payment than it would in a simple interest loan but it also costs you more in total.

Other loans aren’t always as lenient with late payments as simple interest loans are. With other loans, your late fees can accrue interest as well unlike with simple interest auto loans.

STILL HAVE QUESTIONS ABOUT YOUR AUTO LOAN?

We at Andy Mohr Speedway Chevy hope this guide gave you all the information you needed to know about simple interest auto loans. Drivers in Indianapolis, Fishers, and Speedway who still have questions about auto loans should give us a call today. One of our knowledgeable and friendly finance professionals would be happy to help!