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5 Must-Know Facts About Simple Interest Loans

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. Time to cast aside those doubts with a crash course on simple interest.

What is simple interest?

Simple interest is a method for calculating the daily interest on an unpaid principal balance. When you finance with GM Financial, your finance agreement is a simple interest contract, meaning that you aren't charged interest on interest (which is a good thing), just daily interest on the unpaid principal balance.

Early payments

Whenever 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 significantly less in interest over the life of your finance contract.

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 estimated date.

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. You can put your account on cruise control by signing up for automatic payments and avoid late payments altogether.

Paying extra

If you pay more than your monthly payment, there should be more going toward the principal after paying the daily interest. This means the principal balance reduces faster, and the final payment might be less than listed in the contract.

Now you know how your payments affect your simple interest contract. Log in to MyAccount or download our mobile app to update your preferences and worry less about missing payments. If you still have questions about simple interest, visit our simple interest page.

Kelly Schaefer Hill
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.


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