What are simple interest loans?

A simple interest loan is a non-compounded loan. This means each month, when you make a payment, part of it goes towards paying back the borrowed money (principal), and the rest takes care of the interest that accumulates daily. Accumulated daily interest is referred to as 'per diem' or 'per day.'

When you make a payment, it will first cover any fees or interest owed. If the interest owed exceeds your payment, your whole payment goes to paying the interest. Any leftover interest is added to the next month’s payment, along with the regular monthly interest.

If your payment is greater than the interest owed, the rest of your payment then works to reduce the borrowed sum (principal).

Learn more about simple interest loans (PDF).