Simple Interest Explanation
When financing your vehicle with Southeast Toyota Finance, you’ll receive a “simple interest” retail installment contract from us. Interest will accrue every day. But unlike some credit cards or mortgage lines of credit, you only pay interest on the unpaid principal and not on the interest. Every month you make a payment, a portion of your money is applied to any interest that has accrued and is unpaid since your last payment. The rest of your payment then goes towards the unpaid principal, and any other amounts you may owe. Let’s see how this works.
Simple Interest Formula and Example
To calculate how much you’ll pay in interest on your next payment, you’ll first need to calculate your current “per diem” (how much interest accrues per day).
Then, you simply multiply your Per Diem by the number of days since your last payment.
For example, say you have a new Toyota vehicle with an unpaid balance of $20,000, an APR (Annual Percent Rate) of 5% and a monthly payment of $377.