Understanding Simple Interest
What exactly does "simple interest" mean? It's a common question with a simple answer.
Simple interest is an accrual method. Interest accrues on a daily basis on the unpaid principal balance on the account. Each payment you make will first pay down any accrued interest, then the rest will apply to the principal or other applicable fees. You can calculate simple interest by multiplying the daily interest rate by the principal by the number of days that elapse between payments.
Watch our short video for an illustration on how simple interest works. Still have questions? See our most frequently asked questions below.
Frequently Asked Questions
Simple interest is a method for calculating interest accrual. Interest accrues daily on the unpaid principal balance, and the interest charge is always based on the principal. Interest on interest is not charged. To learn more about simple interest and its impact on your contract, download our simple interest fact sheet.
Per diem translates to “per day”. It refers to the amount of interest that accrues daily based on the outstanding principal balance at that time and the interest rate on the contract. At the beginning of the contract, your “per diem” is higher because your principal balance is higher. As your principal decreases over the life of your contract, your per diem will also go down.
To calculate interest per diem or daily interest, divide your annual interest by the number of days in a year.
Depending on whether you make your payments on time, late or early, the final installment amount owed at your maturity date can vary. Download our simple interest fact sheet to learn more about how payments are applied.
If monthly payments are made every month on the due date as detailed on the contract, the final payment due at maturity will likely be the same as what is listed as the final payment on the contract.
If payments are consistently made after the scheduled due date, more interest can accrue and the principal balance can reduce more slowly. When the monthly installment is paid, the principal balance reduces slower; therefore, the final payment can be more than the scheduled payment amount that is listed on your contract. Learn more by downloading our late payment fact sheet.
If you consistently make monthly payments prior to the scheduled due date, less interest accrues on the unpaid principal and the balance reduces faster. Therefore, the final payment may be less than the scheduled payment amount listed on your contract.
Additional payments will be applied to your principal balance and credited to future monthly payments after all interest, fees and late charges are paid.
You can view a payment breakdown in the Transaction Details section of your monthly billing statement.
Payments are applied to accrued interest, past due principal, current due principal, fees (other than late charges), late charges and future due payments in that order. It’s important to note that GM Financial’s standard practice is to apply any extra payments received to future due dates.
Any amount paid over your current amount due will be applied to future payments, which may include principal and interest, assuming the account is current and there are no past-due payments, late charges or other unpaid charges owed on your account. Each payment, regardless of the amount, is applied this way automatically, so you can make your payments as usual, including any extra amount you choose.
You can make principal payments in MyAccount. Specify the amount to apply toward your principal balance on the payment screen.
The balloon payment amount shown on your contract is if you make all your payments on the scheduled due date. That amount could be different depending on whether you consistently pay early/late or make extra payments. If you choose to sell us your vehicle on the balloon payment due date, you’ll need to pay any part of the contract balance that remains unpaid after we subtract the option sales price.
When monthly payments are consistently made prior to the scheduled due date, the principal balance reduces faster and less interest accrues; therefore, the balloon payment may be less than the scheduled payment amount that’s listed on your contract. However, the option sales price listed on your contract and addendum will not change based on your payment activity. If you choose to sell us your vehicle and the option sale price exceeds the contract balance, we’ll refund you the difference.
The principal balance might reduce more slowly, and more interest can accrue when payments are consistently made after the scheduled due date. If the monthly installment is paid late, the principal balance reduces slower; therefore, the balloon payment can be more than the scheduled payment amount that is listed on your contract. However, the option sales price listed on your contract and addendum will not change based on your payment activity. If you choose to sell the vehicle back to us, and the contract balance exceeds the option sale price, you’ll first need to pay the additional amount due.