Simple Interest
Daily Simple Interest — How It Works:
Your contract charges daily simple interest. This means interest is added to your unpaid balance every single day until you pay off the account.
The estimated interest on your contract assumes you pay all payments exactly on time. If you pay even one day late, your account will be charged one extra day of interest on that amount. The longer your payment is late and/or the more times you make a late payment or pay less than the amount due, the more interest you will pay over the life of your account.
Bottom line: Pay your full payment on your scheduled due date to avoid extra interest. Pay your scheduled payments early, and you will pay less interest over the life of your contract.
How is Daily Simple Interest Calculated?
Interest is added to the amount you owe every day based on your current unpaid balance (called your “principal”). Each day, the account is charged interest using this formula:
I = P × R × T
Interest (I) is your daily interest. Principal (P) is the amount you currently owe. Rate (R) is your daily interest rate (a portion of your yearly interest rate). Time (T) is the number of days since your last payment.
How Are Payments Applied to an Account?
Each time you make a payment, it’s applied to your account in this order:
1) Any fees or other charges, if applicable; 2) any interest due; 3) your principal. Because of this, the amount you pay that goes toward interest vs. principal can change with each payment that you make.
How Does Payment Timing Affect the Simple Interest Calculation?
The following are different scenarios of a contract with a starting principal balance of $8,500, a yearly interest rate of 20.9%, and monthly payments of $350. (These examples are for illustration only) [1]
If You Pay On Time:
If you make your scheduled payments on time during your entire contract, no extra interest or late fees are added. Your final payment will match the amount listed in your contract.
| Principal | Rate | Time | Interest | Payment | Balance | |
|---|---|---|---|---|---|---|
| 1st payment | $8,500.00 | 20.9%/365 | 30 Days | $146.01 | $350.00 | $8,296.01 |
| 2nd payment | $8,296.01 | 20.9%/365 | 30 Days | $142.51 | $350.00 | $8,088.52 |
If You Pay Early:
If you pay before your scheduled payment date, your account balance decreases faster, so less interest builds up each day. As a result, your last payment could end up lower than what’s listed in your contract.
| Principal | Rate | Time | Interest | Payment | Balance | |
|---|---|---|---|---|---|---|
| 1st payment | $8,500.00 | 20.9%/365 | 25 Days | $121.68 | $350.00 | $8,271.68 |
| 2nd payment | $8,271.68 | 20.9%/365 | 25 Days | $118.41 | $350.00 | $8,040.09 |
If You Pay Late:
If you pay after your scheduled payment date (or pay less than your scheduled payment), your balance won’t decrease as planned. This will cause additional interest to be added on to your account. As a result, your final payment could be higher than what is listed in your contract, and you may owe extra payments to pay off the account.
| Principal | Rate | Time | Interest | Payment | Balance | |
|---|---|---|---|---|---|---|
| 1st payment | $8,500.00 | 20.9%/365 | 35 Days | $170.35 | $350.00 | $8,320.35 |
| 2nd payment | $8,320.35 | 20.9%/365 | 35 Days | $166.75 | $350.00 | $8,137.10 |
[1] Example figures above are for illustration only and do not reflect the terms of any specific contract.
