Interest rates are complicated. Understanding as well as calculating them can be daunting. When you apply for a Phoenix auto equity loan, you will probably wonder why you are paying back what you are paying; how do they come up with the total interest to be paid back on a loan? The interest rate can be compounded but how is it figured? This post will attempt to iron out some of the interest rate wrinkles and add more clarity to the process of determining how your particular loan’s interest works.
What is simple interest? This is the amount you are charged in addition to the principle loan balance. You will never pay more than your original loan amount with a simple interest loan. What is compound interest? This is the interest that is continuously being charged onto the original balance. Knowing the difference between these two will help you determine what loan would work best for you if you ever need to find some cash fast.
You don’t need to be a loan officer or an accountant to figure out how much interest you are paying back. If you don’t know what your interest rate is on a daily basis, here is a simple way to find out. To determine your daily interest rate, you will take the balance that is left over, or unpaid, and multiply that by your monthly interest rate. So if you have an annual interest rate of 10% monthly, you will need to take your balance remaining on your account and times that by 0.10 or 10%. Then you will figure out how much you are being charged on a monthly basis. Another way to figure this out is to take the interest rate total you are being charged each month and divide that by the number of days in a month. This will also give you the correct total.
Once you understand exactly how much you are paying toward your interest alone, you will be more apt to pay it off on time to avoid any additional charges being added to the total balance.