simple interest late payment

[brianlt4]

Jurisdiction

Arizona

I have a car loan through Regional Acceptance Corp, I've been with them for 3 years and I wanted to know my payoff amount and it only decreased by $1,000. They told me I was on a simple interest loan that accrued daily interest on late payments at almost $10 a day i was late on a payment, shouldn't the interest be charged for the payment that was due and not for the full principal each day. (Seems like I'm paying double interest) If I was 15 days late I would owe an extra $150 of Interest and nothing has been going to principal because of it. On top of the daily interest they also charge me a late fee none of this seems legal, any advice? How should simple interest late payment be calculated?

 

[hrforme]

It sounds like you are confused between late fees and interest. The late fees add into the total amount owed on any given day and then the interest accrues on the total. Let me try to give a simple example.....

Principle/total owed: $100
plus late fee $10
daily interest 1% (for ease of calculation, but it would be much lower per day)

If you made NO payment on late day 1, interest would calculate at (100+10)*.01 = $1.10 more interest and that would add to the principle so at the end of the day, your total owed would be $100+10+1.10= $111.10

Day two, with another $10 late fee plus interest: (111.10+10)*.01 = 1.21 more in interest added to $111.10+10+1.21 = 122.31...never ending.

Let's say you made a $30 payment on day three and got no late fee:
$122.31-30= 92.31*.10= .92 cents in interest that day so end of day balance = 93.23.

In those three days, because of late payments and interest, you balance only went down by $6.77 even though you made a $30 payment.

So if you have a lot of late fees at $10 a day plus interest accruing, it is very possible that you have only been paying a small amount of principle. Also the interest paid early is more than later, because your principle balance is higher and only goes down slowly unless you make extra payments.

(Even if I am incorrect on the interpretation of the late fee, every day you are late, the interest is charged on the higher principle and could possibly depending on the balance and the daily interest rate add on $10 a day.. 15% annual interest (simple daily with no compounding) on a $25k loan is definitely close to $10 a day just in interest)

 

[KatDini]

Yours is not a legal question, but I'll play along.

"Simple interest is a quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments."
www.investopedia.com/terms/s/simple_interest.asp

Simple Interest Calculator A = P(1 + rt)

 

[army judge]

I have a car loan through Regional Acceptance Corp, I've been with them for 3 years and I wanted to know my payoff amount and it only decreased by $1,000. They told me I was on a simple interest loan that accrued daily interest on late payments at almost $10 a day i was late on a payment, shouldn't the interest be charged for the payment that was due and not for the full principal each day. (Seems like I'm paying double interest) If I was 15 days late I would owe an extra $150 of Interest and nothing has been going to principal because of it. On top of the daily interest they also charge me a late fee none of this seems legal, any advice? How should simple interest late payment be calculated?

The wonderful world of interest accumulation and principal depreciation.

The giant is set to compound and grow rapidly.
The other is but a runt, and eventually diminishes to zero.
However, runt's decline is slow, painful, and expensive.

Just another reason to avoid buying anything over time using the "credit trap"!

 

[adjusterjack]

On top of the daily interest they also charge me a late fee none of this seems legal, any advice? How should simple interest late payment be calculated?

It's legal and you've been told how it happens.

If you want to know where you should have been had you made all your payments on time provide the following:

Original date of the loan.
Original loan amount.
Interest rate.
Monthly payments.

 

[mightymoose]

Late fees and interest rates are all disclosed in your loan documents. There should be no surprise.
If you want to know if it is being done correctly then review your loan agreement.

 

[txls]

Ask them for a detailed accounting of all charges and payments.

 

[zddoodah]

They told me I was on a simple interest loan that accrued daily interest on late payments at almost $10 a day i was late on a payment, shouldn't the interest be charged for the payment that was due and not for the full principal each day.

It depends on the terms of your loan agreement, but interest is typically calculated based on the average daily balance of the loan. In any event, the notion of calculating interest based only on the payment amount, as opposed to the principal balance, is absurd. Keep in mind that $10 per day is not necessarily an unreasonable amount of interest if you took out a relatively large loan and got a terrible interest rate. If your principal balance is $25,000 and your interest rate is 15% per annum, then the daily rate of interest would be $10.27.

Also, interest accrues regardless of any late payments, but a late payment fee would apply if you are late with a payment. If the $10 per day is a late payment fee, then the question is whether that's legal under the applicable state law.

If I was 15 days late I would owe an extra $150 of Interest and nothing has been going to principal because of it.

Then make your payments on time.

 

[adjusterjack]

Then make your payments on time.

Like I used to tell my tenants: "If you don't like the consequences of paying late, don't pay late."