5 Must-Know Facts About Simple Interest Loans

What You Need To Know About Simple Interest

Learning how simple interest loans work may not be top on your to-do list, but knowing the basics might just save you money down the road. Compare a typical lease, retail financing and balloon contract for EVs to determine which financing option is right for you, bearing in mind that a lease is not a simple interest contract. Then, see how your simple interest auto financing is set up.

What is simple interest?

Simple interest is a method for calculating the daily interest on an unpaid principal balance. Many auto financing companies, including GM Financial, use simple interest contracts. This means you only pay daily interest on the unpaid principal balance, and you aren't charged interest on top of interest (which is a good thing).

Early payments

When you make a payment with GM Financial, any accrued interest is paid first. So, if you make a payment early, less interest will have accrued and more of your payment will go toward the principal. Paying early can whittle down your principal over time, and you may pay less in interest over the life of your finance contract. With consistent early payments, you could finish your contract sooner.

On-time payments

Are you a stickler for paying your bills on time? Good financial habits like this may help your credit score. If you make all your payments on time, you'll complete your contract on the planned maturity date. Many auto financing companies allow you to set up Auto Pay in your account profile to ensure you make payments on time every time.

Principal-only payments

If you make a principal-only payment, that money goes directly toward paying down your principal balance. This means the principal balance reduces faster, and you’ll pay less interest over time. By consistently making principal-only payments in addition to your monthly payments, you could shorten the length of your contract, especially if you have a long-term auto finance contract.

Late payments

Life happens, and it’s easy to forget about a bill now and then. If you make a late payment, you may be facing late fees. Plus, your late payment will need to pay down more interest before it can be applied to the principal balance. Making late payments can increase the amount you owe at the end of your contract because smaller amounts of the principal are paid over time.

Now you know how your payments affect your simple interest auto financing contract. Log in to MyAccount or download the GM Financial Mobile app to stay on top of your account. If you still have questions about simple interest, visit our auto financing page.

By Kelly Schaefer Hill, GM Financial

Soccer mom, corgi enthusiast, virtual learning teacher’s assistant, Kelly Schaefer Hill wears a lot of hats, but one thing she can’t stay away from is data and fun facts. When she’s not writing a post to answer your questions, she’s hanging with her family.