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Are Auto Loans Simple Interest? Please help.

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Are Auto Loans Simple Interest? Please help.

A week ago today I traded in my 2015 Honda Odyssey with 95K miles(paid for/owned) for a 2019 Honda Civic Hatchback EX and I'm financing just under $15,000 with the credit from my trade in.

 

However, my credit score ranged from 524 Credit Karma, 543 Bank of America, 571 Citi, 520 TransUnion, 524 Eqifax and 571 Experian.

 

My children are older now and have no time for daddy, so i didn't need to Odyssey anymore, so I went for a smaller, reliable car in the Civic.

 

I said all that to ask this:

 

I'm paying 9% interest on approx' $15,000 with payments at $263 per month which includes the 10 year bumper-to-bumper warranty for 75 months.

 

Yet, when I do the math, it shows that if I allow the payments to go 75 months, I will pay approx' $19, 460 for the Civic.

 

I don't get it, if I buy a TV for $1000.00 from Walmart with 9% sales tax, wouldn't I pay approx' $1090.00 for the TV?

 

I was under the impression that that's how my auto loan would work.

 

Am I wrong, stupid, ignorant or all the above.

 

Now, even before buying the 2019 Honda Civic Hatchback EX, I was intending to pay double, even triple payments, notating that the extra payments go to "PRINCIPAL," but this has me extremely confused.

 

So, i went into BOA, I don't have the loan from them, I bank with them and I spoke to a manager, who normally works with members on auto loans and she stated that auto interests "ISN'T" simple interests like tax on purchases.

 

Please help where am I confusing myself.

 

Thanks in advance.

 

p.s. One quick second question. 

 

If I make my normal payment of $263 each month, but also pay an additional $1000.00 per month, how do I specify that the $1000.00, every penny of it, should go to PRINCIPAL?

 

I've watched several YouTube videos and even when people pay extra, their extra payment "still" has interest deducted from it.

 

Finally, shouldn't the interest decrease, if the principal balance (approx' $15,000) decreases?

 

If you have read this far, God bless you, if you are able to help me, God bless you even more.

 

 

I have thick skin, so feel free to call me an idiot if you believe I did something complete ignorant or stupid.

 

Thanks!

 

Message 1 of 6
5 REPLIES 5
Valued Contributor

Re: Are Auto Loans Simple Interest? Please help.

APR means ANNUAL percentage rate.  The interest is 9% PER YEAR

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Message 2 of 6
Senior Contributor

Re: Are Auto Loans Simple Interest? Please help.

You're an idiot!!!!

 

Just kidding. OK:

if I buy a TV for $1000.00 from Walmart with 9% sales tax, wouldn't I pay approx' $1090.00 for the TV?

- Yes, but that's assuming you pay cash. When you buy something on credit the interest charges increase the total amount you pay for something.

 

Yet, when I do the math, it shows that if I allow the payments to go 75 months, I will pay approx' $19, 460 for the Civic

- Well, you're really paying $15k for the car, period. What you're paying $4,460 for it for someone to loan your $15,000 for 75 months, at a high rate of 9% for a car loan because of your low credit scores.

During the early part of your loan most of your payment goes for interest, toward the end of you loan most of your payment goes against the principal. It's called amortization, the way installment loans work. If you paid off the loan today you would pay very little interest, if you make only the required payments for the full 75 months you'll end up paying around $4,460 in interest.

 

If I make my normal payment of $263 each month, but also pay an additional $1000.00 per month, how do I specify that the $1000.00, every penny of it, should go to PRINCIPAL?

- If you make the payment of $263 and then pay an additional payment of $1,000 that $1,000 will automatically be applied to the principal, because your standard payment of $263 has already paid any and all interest due. If you make monthly payments of $1,000 instead of the $263 standard payment then some of the payment will be interest, but only the current interest due, and the rest against principal.

 

My car payment is $246.xx and I round up and pay $250 monthly, that extra $3.xx goes against principal and if I keep doing that the loan will be paid off in around 60 months instead of the 65 month term of the loan and I will have paid less total interest.

 


Fico 08: 734/716/734 TU/EX/EQ
Message 3 of 6
Moderator

Re: Are Auto Loans Simple Interest? Please help.

At OP please refrain from asking your question multiple times as I removed you other post that was exactly the same with a different title.  It is against the TOS of the forum and confusing to users.  Thanks for your cooperation.

Message 4 of 6
Senior Contributor

Re: Are Auto Loans Simple Interest? Please help.

By the way, "Simple Interest" is defined as: "Simple interest is a quick and easy method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments."

 

Your "daily interest rate" is the Annual Percentage Rate (APR) divided by the number of days in the year, 365. Your 9% loan has a daily interest rate of .024658%, 9/365.

 


Fico 08: 734/716/734 TU/EX/EQ
Message 5 of 6
Contributor

Re: Are Auto Loans Simple Interest? Please help.

No problem, I clicked send or whatever after I finished writing my post, but your system keep asking for a field, like Auot loans or Auto refinance that I had alreay filled out.

 

I'm new tothese boards and trying to figure them out, but for some reason your sytem doesn't like me!

 

Trust me, i have every intention of honoring your guidleines, when your system functions properly.

 

I actually thought the post didn't go through, because your system kept asking and demaning a source.

Message 6 of 6
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