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Old 12-11-2009, 03:01 PM   #1
vernal
 
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"Simple Interest" vs "Simple Financing"

When I was buying my Camaro one of the problems that I ran into was the financing contract. My sister and my friend both had new car contracts that said "[State] Simple Interest Contract" at the top, and nothing else, while the one the dealer gave me had a more involved top and the second line said "Simple Finance Contract." It made me nervous enough to secure financing elsewhere.

When I first bought a car from a dealer (albeit a used-car dealer), I agreed to an outrageous interest rate because the dealer said once I built up some credit history I would be able to refinance it. However, it turned out that the contract I signed locked me in for the entire amount, interest and principal together, so paying it off early just meant that they got their big interest rate early.

Has anyone seen this "Simple Financing" contract before? Was I right to worry about it? Simple interest is what I wanted, so I could make bigger payments and pay less interest and pay it off sooner, but I didn't see the words "Simple Interest" anywhere on this contract. Having been burned once already, I freaked.

Thanks for any input you can provide, to me or others.
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Old 12-11-2009, 07:10 PM   #2
jrboyd_1980
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What you are worried about having an open contract. The dealer doesn't have anything to do with the contract. That is done through the bank. Most banks have an open contract meaning if you pay it off sooner then you don't have to pay the interest rate for the days you didn't use it. I am betting the used car dealership was Buy here / Pay here? or The did their own financing.
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Old 12-11-2009, 08:23 PM   #3
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Simple interest is—well—simple.

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Old 12-15-2009, 05:57 PM   #4
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I agree, simple interest is simple. Simple interest is what I wanted. However, the contract never said "Simple Interest" anywhere, it said "Simple Financing." The other two contracts both said "Simple Interest."

If you're going to be happy financing the whole amount for the term of the contract, this isn't an issue. However, if you are expecting some money changes and want the ability to pay off the contract in a year without paying for five years of interest this becomes an issue. Also, if you want to make larger than required monthly payments to pay down the principle faster.
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