(Posted on Aug 13, 2018 at 05:26AM by Patrick Wensink)
Hey Patrick,
I have my eye on a pre-owned Nissan Leaf, and I’m trying to decide how to finance it. What is the difference between pre-computed versus simple interest loans?
-Ariel
Hi Ariel,
That’s an awesome choice for a car. I can see why you are so eager to get rolling (pun intended!). These two types sound confusing but are actually perfect for customizing schedules depending on whether or not you aim to pay it off early.
A pre-computed loan means that each deposit made for the life of the note is calculated out exactly. So, if you have a five-year plan it will always be that amount every month. However, this type of borrowing is not ideal if the aim is to pay off the car in less time, because you will not save on interest.
If you are aiming to fluctuate regular deposits and maybe complete the note early, a simple loan is the way to go. This method of lending re-calculates the interest based on the outstanding debt on a daily basis. It will save money if you are able to contribute extra each month.
Hopefully, you know which is right. Let me know if you have more questions.Â