Dealership Preparation: Simple Interest | Auto Finance 101 | Ford


[MUSIC] Simple interest is the most common method
of calculating finance charges and is based on how much you still owe,
the APR, and the amount of time. How does someone calculate
simple interest? Show them the magic formula! [SOUND] Your current balance
times the APR divided by 100. Then divided by 365 days times the number
of days between payments equals the finance charge for that period. [SOUND] Well, the thing about simple interest is
that your payment habits affect how quickly the principal balance goes down
and how much you pay in finance charges. [SOUND] So if you can make a habit of
paying more than your normal payment, the principal balance will shrink faster
and you pay less in finance charges. [SOUND] Plus, because finance
charges are calculated daily, paying earlier can also save you money. Pay more, and/or pay early and over time
you pay less in finance charges, and can save big. [SOUND] On the other hand, paying late or
less than what’s due can have the opposite effect,
resulting in more finance charges and the principle balance not
going down as quickly. But we’re not going to do that, are we? [SOUND] Good, now show them where they go to learn more. [MUSIC]

About the Author: Michael Flood

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