Per diem, in the context of a car loan, typically refers to the daily interest charge that accrues on the outstanding balance of the loan. Here's how it works:
Daily Interest: When you have a car loan, interest accrues daily based on the remaining principal balance of the loan. The interest rate (often expressed as an annual percentage rate, or APR) determines the amount of interest charged each day.
Calculation: To calculate the per diem, you divide the annual interest rate by the number of days in the year. For example, if your annual interest rate is 5%, the daily interest rate would be approximately 0.05 divided by 365 (or 0.00013699).
Accrual: Each day, interest accrues on the remaining balance of the loan. As you make payments, the principal balance decreases, and therefore the amount of interest accrued each day also decreases.
Billing: Some lenders may calculate and bill the per diem interest separately from your regular monthly payment. Others may include it as part of your monthly payment calculation.
Understanding the per diem interest on your car loan can help you budget and manage your finances effectively. If you have questions about how your lender calculates per diem interest or how it affects your loan, it's essential to contact them directly for clarification.
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