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Amortization vs Simple Interest Calculator
Mortgages use amortization; most auto loans and some personal loans use simple interest. The two structures pay out differently for borrowers who pay early, late, or exactly on time. This calculator compares both.
Amortized monthly
$484
Simple-interest monthly
$564
Amortized total paid
$34,857
Simple-interest total
$40,600
Late-payment penalty (simple)
$252
extra if late
How the math works
Amortized loans have fixed payments with a declining interest portion. Simple-interest loans charge interest on the current balance between payments — so late payments cost more interest, early payments save more.
Most auto loans and some personal loans are simple-interest. Mortgages are almost always amortized. Simple-interest borrowers who pay early or bi-monthly can save meaningful interest compared to amortized loans.
How to Use
- Enter principal, rate, and term in months.
- Enter % of payments made on time. Simple-interest loans penalize late payments more heavily.
- Compare monthly payment and total paid across both structures.
Frequently Asked Questions
Which is better for the borrower?
Simple-interest usually, IF you pay early or on time consistently. Amortized is better if your cash flow is tight or you sometimes pay late. Most consumers are better off with amortized for predictability.
Why do auto loans use simple interest?
Auto lenders value the flexibility for borrowers to pay down early without prepayment penalty. Also simpler to modify term mid-loan. The simple-interest structure protects lender yield on timely payment without locking borrower into one schedule.
Do credit cards use simple interest?
Credit cards compute interest daily on average daily balance — closer to simple interest with daily compounding. Which is why paying early in the billing cycle vs at the end matters for interest charged.
Related Calculators
Simple Interest Loan Calculator
Simple-interest specific calculator.
Amortization Calculator
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Daily Interest Calculator
Daily accrual detail.
Auto Loan Calculator
Auto-specific amortization.
APR Calculator
Compare loans on true APR.
Mortgage Calculator
Standard amortized mortgage.
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