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Understanding Simple Interest PowerPoint Presentation
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Understanding Simple Interest

Understanding Simple Interest

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Understanding Simple Interest

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Presentation Transcript

  1. Understanding Simple Interest

  2. What is Simple Interest? • Simple interest is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid. • Interest is a set percentage that is calculated and paid to a lender. • Principalis the actual amount of money that you borrowed from the lender. It does not include the interest or any other charges.

  3. What is Per Diem? Per Diem: It is the amount of interest that accumulates on a daily basis on the car loan.The per diem figure is reduced if the balance is lowered and the interest rate remains the same. The per diem figure is reduced if the interest rate is lowered and the balance remains the same.

  4. Understanding Simple Interest • Interest is not a penalty. • Interest is the cost of borrowing and you pay it, even if you pay on time. • When a deal is structured, the monthly payment amount is calculated based on the term length, the amount financed, and the APR. • Interest gets paid first. • If a customer is chronically past due, it will have an affect on their final payment and the principal may not be paid in full by the maturity date.

  5. Understanding Simple Interest Example: If a customer is past due 15 days every month for the entire life of the loan, the final required payment, once the loan matures, will be larger than the regular scheduled or contracted payment. Conversely, if a customer pays 5 to 10 days early consistently each month of the contract the account could be paid off early.

  6. Late Fees and Grace Periods Customers commonly believe that they have a “Grace Period”. This is not true, the interest is assessed each day. They think that there is no negative impact for late payments until a late fee is assessed. This is an additional charge. Based on a customer’s contract, they may not be assessed a late fee until several days after their payment is due (if at all). When customers have high interest rates, late payments can have a major impact.

  7. Questions…