avalpert t1_j6kox7r wrote on January 31, 2023 at 12:27 AM

Reply to comment by SoppingBread in (US) My car loan interest rate is 5.5%, but 15% of my monthly payments go towards interest. Why? by SupplyChainOne

No, it isn't calculated over the term of the loan. Interest is accrued (typically) daily on your outstanding balance. Interest payments aren't 'front loaded' and the total amount of interest you will pay isn't fixed up front.

The reason why more of your fixed payment is interest early on is because you have a higher balance accruing more interest.

SoppingBread t1_j6kqven wrote on January 31, 2023 at 12:41 AM

"Since money towards principal reduces the balance, the interest payments are front loaded (more money towards interest early in the loan and less at the end). Amoritization calculaters visualize this effect."

Firat sentence was an incomplete thought; APY is calculated for the term of the loan an figured into a normalized payment amount. Else you said the same thing.