Pay off your loan faster with daily simple interest
We asked two of our Lending Specialists — Roger Osmond, Branch Manager in London, Ontario, and Kelly Wilson, District Manager in Moncton, New Brunswick — to give us some tips on how daily simple interest can help customers pay off their loan faster.
Breaking down daily simple interest
Roger's been with Fairstone for the past 19 years and is an expert at explaining daily simple interest.
"Daily simple interest is calculated every day based on your outstanding balance. From the date of your last payment to the date of your next payment, interest builds. After your next payment, when your balance goes down, interest is calculated on the lower balance. With daily simple interest, interest is only charged on the amount you owe each day."
Take a look at this calculation Roger uses to explain daily simple interest:
loan balance x (interest rate / 365) x # of days between payments = interest charged
Here's an example of how interest is calculated when a payment is made every 30 days and every 14 days:
$5,000 x (27.99% / 365) x 30 days = $115.03 interest
$5,000 x (27.99% / 365) x 14 days = $53.68 interest
Pay off your loan faster
With 16 years of experience under his belt, Kelly knows his stuff when it comes to the benefits of daily simple interest. Check out his 3 tips on how to pay off your loan faster:
1. Increase the amount of your monthly payments.
2. Make bi-weekly or weekly payments to reduce the interest charges on your account.
3. Apply lump-sum payments early on (Tip: most of your payments go towards interest at the beginning of your loan, so this is the best time to make larger payments).
Kelly says: "Daily simple interest works to your advantage. We provide affordable monthly payments that fit within your budget, but because you're able to pay off our unsecured products at any time, you can achieve your financial goals quicker if you increase your payment frequency. By speeding up your loan repayments you'll reduce your interest charges fast."
Customers who are well informed take more ownership of their loan and feel empowered to take control of their finances."
Avoid late or missed payments
While daily simple interest can help pay down your loan faster, both Roger and Kelly point out that it can also work against you if you make a late payment or miss payments. Unpaid interest adds up between payments and if you're not paying down your loan, the balance of your loan won't decrease, making your interest charges higher. In this situation it can be difficult to get back on track, but our Lending Specialists are here to help.
Take control of your finances
Did you know only 7.1% of Canadian adults consider themselves to be financially literate?1That's pretty low when you take into account the 72% of Canadians who hold some form of debt.2 It's a good idea to fully understand any financial product you apply for. Lending Specialists like Roger and Kelly see a big difference in customer experience when they understand how their loan payments work.
"Customers who are well informed take more ownership of their loan and feel empowered to take control of their finances," says Roger. "Anytime we can help a customer do that, it's a win for everyone."
Have any questions?
If you have any questions about daily simple interest, or would like to learn more about Fairstone loans, meet with a local Lending Specialist today.
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.
1 "Canadian Financial Capability Survey, 2014.” Statistics Canada. 06 Nov. 2014. Web. 08 June 2016.
2 "CIBC Debt Poll: 72 per cent of Canadians are in debt, but many are making extra payments to bring down balances.” Canadian Newswire. 28 May 2012. Web. 08 June 2016.