How are interest payments calculated?

Nicholas H
2023-07-13T13:42:12Z

Diamond Credit Union uses simple interest to calculate interest payments. A specific interest rate is applied to the unpaid principal balance through the life of the loan, but interest does not accrue on any unpaid interest. Interest on unpaid principal balance accrues daily.

Payments are owed in equal monthly installments. At the beginning of the loan, a larger share of the payment is applied to interest because most of the principal balance has not been repaid yet, so a larger dollar amount of interest will accrue. As you pay down the principal, a smaller amount of interest will accrue each month because the principal balance will be less. This will allow a larger share of the monthly payment to repay principal over time.

Because interest accrues daily, the amount of interest owed for a specific payment will vary depending on how many days have passed since the last payment. This means if you make your monthly payment a few days early, fewer days of interest will have accrued, and a larger share of your payment will go towards paying down principal than if you had waited the full month.