What is a Simple Interest Loan?

Signing Documents for Car

If you’re like a lot of our Phoenix customers who are wanting to finance the purchase of a used car, you likely have some questions. For example, what is a simple interest loan? How does a simple interest auto loan work? We’ll talk about that below, and even explain how to calculate a simple interest rate on a loan.


How Does a Simple Interest Loan Work?

So, what is a simple interest loan? How does a simple interest loan work? With a simple interest loan, you only pay interest on the principal. That’s different from a compound interest loan, in which you pay interest, not only on the principal, but also on the interest from the previous period. As you can see, simple interest loans cost less in the long run. Fortunately, simple interest loans are often available for auto financing. Our Finance Department can walk you through your options.

How to Calculate Simple Interest Rate on a Loan

We’ve taken the confusion away from car loans for lots of Glendale customers just like you. We love to keep our customers informed. So, here’s how interest on a simple interest loan is calculated:

How to Calculate Simple Interest Rate on a Loan

  • Multiply your principal by your annual interest rate
  • Divide that answer by 365 (number of days in a year)
  • The result is your daily interest rate

Example (What is a simple interest loan rate on a $10,000 loan with an annual interest rate of three percent?):

  • Principal = $10,000; Annual Interest Rate = 3%
  • $10,000 x .03 = $300 (annual interest)
  • $300/365 = $0.82 (daily simple interest)

Ways to Save With a Simple Interest Loan

Obviously, you pay less interest over time with a simple interest loan as opposed to a compound interest loan. But you can also save with a simple interest loan by reducing your principal. You can do that in the following ways:

  • Pay more than the minimum monthly payment
  • Making extra payments in addition to your regular monthly payment
  • Paying off the loan early (make sure your loan has no penalties for early repayment)

Talk to the Finance Department at Rocky's Auto Credit of Mesa

Our friendly finance managers are happy to explain the ins and outs of auto financing and simple interest loans to you. We make it easy to buy a car. You can even apply for financing online. We’re just a short drive away from Tempe, so drop by or contact us today!

More from Rocky's Auto Credit

  • How Long Do Hyundai Sonatas Last?

    A quality pre-owned Hyundai Sonata would be great for your Phoenix commute. But you probably have questions. Fortunately, our experts are here to help. We’re going to go over some important information about Hyundai Sonata vehicles so that you have a better understanding of whether it’s a good fit for your Mesa lifestyle. Some questions we’ll…

  • Used SUVs With the Best Gas Mileage

    With a wide selection of pre-owned vehicles available, it’s never been easier to find the perfect vehicle to take home with you to Phoenix when you shop at our dealerships. A popular option that we think you’ll appreciate is our pre-owned SUVs. Our used SUVs come with plenty of versatility and performance to really elevate…

  • What Is a Good Used Commuter Car?

    When you’re looking for the best used commuter car for your Phoenix drives, it’s important that you weigh all your options. There are likely many different pre-owned vehicles for you to choose from, but not all of them will offer the same benefits. So, what is a good commuter car? The answer truthfully depends on…

Rocky's Auto Credit 33.4062373, -111.8573523.