A "per diem car loan" typically refers to a type of auto loan where interest is calculated and charged on a daily basis rather than on a monthly basis. This method of interest calculation can affect the overall cost of borrowing and the repayment schedule.
Here's how a per diem car loan works:
Daily Interest Calculation: With a per diem car loan, the interest is calculated based on the outstanding principal balance of the loan each day. This means that the interest accrues daily, and the amount of interest charged may vary from day to day depending on the outstanding balance.
Impact on Repayment: Because interest accrues daily, borrowers may notice fluctuations in the amount of interest charged each month, especially if they make additional payments or pay off part of the principal balance early. This can affect the overall repayment schedule and the total amount of interest paid over the life of the loan.
Comparison with Monthly Interest: In contrast to per diem interest, traditional auto loans typically calculate interest on a monthly basis. With monthly interest calculation, the interest for the entire month is added to the loan balance at the beginning of each month, and the borrower makes fixed monthly payments that include both principal and interest.
Considerations for Borrowers: Borrowers considering a per diem car loan should carefully evaluate the terms and conditions of the loan, including the interest rate, repayment schedule, and total cost of borrowing. While per diem interest calculation may offer flexibility and potentially lower interest costs for borrowers who make extra payments or pay off the loan early, it can also result in higher overall interest costs if the loan is not paid off quickly.
Lender Policies: Not all lenders offer per diem car loans, so borrowers interested in this type of financing may need to shop around and compare offers from different lenders to find the best terms and rates.
Overall, per diem car loans offer a different approach to interest calculation and repayment compared to traditional auto loans. Borrowers should carefully consider their individual financial situation and goals before deciding whether a per diem car loan is the right option for them.