What is a Simple Interest Loan?

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How does a simple interest auto loan work, and is it something that Northern Chicago truck drivers can use when borrowing money for a commercial truck? Sure! The finance center at Lynch Truck Center can explain it all to you so you can decide the best way to finance your work truck. Start by answering the question, “What is a simple interest loan?” and then find out how to calculate your payments in advance.

How Does a Simple Interest Auto Loan Work?

Of course you know that when you get an auto loan, the lender charges a percentage of the total as interest. There are two kinds of interest: compound and simple. Compound interest is calculated daily. This daily interest is equal to the annual rate and then divided by 365 (or 366 during a leap year). Early in the payment process, Milwaukee borrowers will be paying more in interest than the loan’s principal.

So, what is a simple interest loan? With this type, interest is predetermined at the beginning of the loan. Since it stays the same through the time of the loan, the payments don’t change. You’ll also pay more on your loan’s principal early on. This will save you money on interest. You can reduce the interest even more by:

  • Paying more than the minimum payment on your loan each month
  • More than one payment a month.
  • Paying off the loan before your term ends if there aren’t any penalties for early payment.

How to Calculate Simple Interest Rate on a Loan

Learning how to calculate simple interest rate on a loan isn’t difficult. Take the principal amount, multiply it by the interest rate and the number of time periods in the loan. For example, a five-year loan for $20,000 with eight percent interest would be $20,000 x .08 x 2 = $3,200 interest. Not interested in doing the math yourself? Our monthly payment calculator can help you determine exactly what you’ll pay.

There are no surprises with a simple interest rate. As long as you make your payments on time as promised, you’re likely to get the benefits of lower interest on the life of your loan in Racine.

Get the Right Financing at Lynch Truck Center

No matter what you drive Lynch Truck Center can help you get the right loan for your truck and your budget. Learn more about all your truck’s financing options at our car finance and insurance information hub.

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