How a simple interest car loan works, and how to save money on payments

Knowing how simple interest car loans work is a helpful first step when shopping for credit or repaying a loan, and may enable you save. Most auto lenders, such as RoadLoans and parent company Santander Consumer USA, provide simple interest financing, so read on and watch our video to learn more.



To summarize, simple interest loans are made up of two important parts – principal and interest. Principal is the amount financed for the purchase while interest is the charge paid for borrowing that money.

With this type of loan, interest is calculated daily on the outstanding principal. So, at the start of the contract when principal is greater, you pay more in interest, but interest payments go down over time as the principal amount reduces.

As interest is calculated by the day, if you pay on the scheduled date then you’ll pay the exact amount agreed in your contract. The way simple interest car loans work also means a borrower has opportunities to save as they repay their loan, and potentially pay off the car quicker.


3 Ways to save with a simple interest car loan

  • Pay early – Make your monthly payment before the due date and less interest has accrued. More of your payment will go toward principal than if you paid on schedule.
  • Pay more frequently – More regular payments, such as breaking the monthly payment in two and paying half twice a month, also reduces what’s paid in interest. Alternatively, paying half your payment every two weeks will effectively add an extra full payment by the end of the year. Make sure these payments are timed to fulfill your monthly obligations.
  • Pay some extra – An additional lump sum, or topping up your monthly payments, will pay down principal faster and is another way to save on interest costs.


What to avoid

Remember that late payments will result in more of those payments going toward interest than by paying on time. Consistently paying late may cause additional payments or a single large payment to be added to the end of the contract.


Making the most of simple interest

With some easy steps, a simple interest car loan may enable you to make a decent saving on your finance charges over the life of the contract, and even pay off your car early. Apply for financing with online auto lender RoadLoans and, if approved, you may be able to enjoy the benefits of a simple interest loan.

Apply for a car loan online.


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