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Does a car loan charge compound interest?
I've read that some loans are compound interest and some are simple interest. Which one is true for a car loan?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Car loans
charge simple interest instead of compound interest, which saves you money in the long run.Simple interest calculates the amount of interest you pay based solely on the amount of the principal loan. This is in contrast to compound interest, which charges interest based on both the principal and the amount of interest accrued over time. As a result, you’ll pay less on a loan with simple interest than that with compound interest.
If you want to get a more accurate idea of how much interest you pay each month and over the life of the loan, ask your lender for an amortization schedule, which shows how your principal and interest change over time.
But don’t forget that your car interest isn’t the only expenditure of owning a car. You also need to budget for gas, maintenance, and car insurance. To help you save money on car insurance, check out the
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