You have a simple interest loan. This means:
- You only pay interest on what you still owe.
- Interest doesn't build up on itself (no "compounding").
- Your payments work in your favor over time.
Here's how your payment works:
- First, a portion of your payment covers the interest that has built up since your last payment.
- The rest goes toward reducing what you borrowed (the principal).
At the beginning of your loan, more of your payment goes toward interest because your balance is higher. As you keep making payments, your balance gets smaller, so more of each payment goes to paying down your principal.
Good news: If you can pay more than your regular monthly payment, even just a little, you can lower your loan balance faster and save money in the long run. This means paying off your loan sooner and paying less interest overall.
Even small extra payments can help you save money and get out of debt sooner!