At Chrysler Capital, we like to make life simple and when you purchase a vehicle, it comes with a simple interest loan.
Understanding how simple interest works can help you to stay on course with your payments, and even save, so watch this short video and read on to discover how.
Principal and interest
Two important parts of a simple interest loan are principal and interest. Principal is the amount of money you borrow to purchase the vehicle while interest is the charge paid for borrowing that money.
At the start of your contract, the amount of interest you pay is greater because the principal balance is large. As you make payments, the principal balance reduces along with the interest.
Why the timing of your payment matters
Simple interest is calculated daily and when you pay on your due date, you pay exactly the amount of interest agreed upon in your contract.
If you pay late, more interest will have accrued since your last payment so more of the payment will go toward interest.
Pay early, however, and a larger part of the payment will be applied to principal and a smaller part to interest, which may enable you to save and potentially pay off the vehicle quicker.
How to save on interest
Set up early payments – Even a single early payment will provide a saving on interest but consider setting up regular early payments to reduce the amount of interest you pay each month.
Pay some extra – Adding to your monthly payment or making a lump sum payment will also pay down your principal balance faster and offer savings on interest.
Simple steps for managing your account
It makes sense to stay on top of your auto contract for a number of reasons. If you’re late with a payment, not only will you pay more in interest but you may also incur a late fee. Consistently paying late can lead to extra payments being added to the end of your contract or a large final payment.
If you’d like to save on interest, whether by paying early or paying extra, log in to MyAccount where you can easily make payments and update your payment preferences.
Keep in mind that you will always need to have enough cash in your connected bank account for payments to clear. You may want to plan for your expenses, and all of your monthly expenditure, to ensure any adjustments to your payment schedule will work.
Read our “Setting a monthly budget” article to get started and explore more resources at the Discovery Center to grow your financial knowledge.