Simple Interest

Daily Simple Interest Explanation

• Your contract is a daily simple interest contract. This means that interest accrues on the unpaid principal balance each day, until the balance is paid in full.
• The way that daily simple interest works is described below, but when you have a daily simple interest contract, it means that you must make all your payments exactly on time to avoid additional interest charges from adding to your balance. If you make a payment even one day late, one extra day of interest will be added to your account, and the total interest you pay over the life of the account will increase.  The later you make each payment, the more additional interest charges you will pay.
• The interest charges that accrue every day on your contract are not the same as late fees. Late fees are separate charges that could occur if you make a late payment and they are provided for in your contract.
• If you make your payments early, you will pay less in interest charges. The earlier you make payments, the more you will save in interest charges.
• This means that you should always make your payments exactly on the due dates in order to avoid additional interest charges. If you are able to make payments early, you will pay less in interest.

How is Daily Simple Interest Calculated?

• Interest on a daily simple interest contract is calculated on a daily basis, so interest is added on the amount of the contract (current outstanding principal balance) every day from the date the interest charges begin until the date that the contract is fully repaid.
• The amount of interest for each payment is calculated by multiplying the outstanding principal amount (P) by a daily percentage of the annual rate (R) and by the time (T) in number of days between the receipt date of the last payment and the receipt date of the current payment.

I = P x R x T

How do Payments Impact the Principal Amount?

• The portion of each monthly payment allocated to interest may fluctuate.
• As each payment is paid on a daily simple interest contract, the payments will be applied first to any interest that has been added on the account, then to the principal amount remaining on the account, and finally to any late fees or other charges on the account.

How does the Timing of Payments Impact the Simple Interest Calculation?

For a retail installment contract with a principle balance of $8,500, an annual interest rate of 20.9%, and monthly payments of $350:[1]

• On-Time Payments: If all payments are received each month on the scheduled due date, no additional interest or late fees will added, and the final payment due at maturity will be the same as the amount listed as the final payment detailed in the contract.

• Early Payments: If payments are made prior to the scheduled due date, the principal amount will reduce at a faster rate, resulting in less interest that will added on the account each day. The final payment due at maturity may be lower than the amount listed as the final payment detailed in the contract.

• Late Payments: If payments are not received by the scheduled due date, the principal amount will not be reduced according to the stated schedule and unpaid interest and late fees, if applicable, also will add to the outstanding balance.  The final payment will likely be greater than the amount that is listed on the contract, and additional payments may be required beyond the scheduled payments to resolve any outstanding balance.

[1] The examples provided in this description are for illustrative purposes only and are not intended to reflect the actual terms of any particular daily simple interest contract.