How a Simple Interest contract works

If you already have or are looking to apply online for a vehicle purchase, chances are you’ll be given a Simple Interest contract.

How does such a contract work and how will it affect your monthly car payments? Our Simple Interest video in our Customer Center can help explain.

How does a Simple Interest contract work?

Essentially, there are three important factors in a Simple Interest contract.

PRINCIPAL

The Principal refers to the actual amount of money you financed on the purchase of your vehicle.

For example, if one were to purchase a vehicle for $15,000 and made a down payment of $2,000, that person would have a Principal amount of $13,000.

The goal of a vehicle financial contract is to pay off the Principal of your purchase. Since a contract is paid off over time, monthly payments also must attribute to another factor …

INTEREST

Interest covers the cost of paying for the vehicle over time, instead of paying the full amount up front. The amount of Interest a customer owes each month accrues daily and is based on how many days have passed since the last payment.

This comes to the third important factor in a Simple Interest contract …

SCHEDULING YOUR PAYMENTS

During the span of financing your vehicle, your contract discloses the amount of Interest to be paid based on the scheduled due date.

Because Interest accrues daily, the amount contributed to it may increase or decrease depending on when payment is provided. If a customer pays after the schedule due date, the amount paid toward Interest increases.

But if a customer pays earlier and before the due date, less Interest will have accrued and more of the payment goes toward the Principal.

Long story short, do not be late! Consistently paying after the due date could lead to additional payments getting added to the end of the contract due to increased Interest.

Need more help with your monthly budget? Check out our Finance Resources page for tips and our Chrysler Capital Finance Calculators to learn more!