Precomputed interest loans aren’t common, but it’s important to know how they work in the event you come across one. With these loans, interest is calculated upfront instead of as you pay your balance, which means you may not save yourself any interest by paying off the loan early.
What is Precomputed interest on a car loan?
A precomputed loan calculates the total interest for your loan term up front when you open your loan. This is an important distinction from daily simple interest loans, which calculate interest on an unpaid principal balance as payments are made.
What does Precomputed interest mean?
Precomputed interest loans are a popular method of lending for borrowers requesting less than a few thousand dollars for a loan term of less than five years. … The pre-calculated interest charges favor the lender over the borrower for short-term loans or if a loan is paid off early.