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Thread: Question about car interest (paying off early)

  1. #1
    AudreyLeigh
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    Default Question about car interest (paying off early)

    Sorry if this has been explained before but I suck at the search function (and math) and finance and on and on....

    (revised)

    Heres what Im looking at. My car payment is $499.08 a month (I just pay an even $500)

    $358.48 goes towards interest
    $141.52 goes towards principal

    Im planning on paying my car off next May. I owe $24,333.45 on the loan. I have 61 Payments Left

    Original terms of loan

    APR 9.9
    Finance Charge $8920.51
    Amount Financed $27,013.25
    Total of Payments $36,933.76

    If I pay it off early since the $358 a month now Im paying towards interest is based on a 6 year loan and now this will only be a 2 year loan do I get the interest back (put towards principal) that Ive paid over?

    I ask because I know with most car loans the interest isnt spread out over the length of the loan. They have you pay off the interest in the beginning and then youll be paying mostly principal at the end.

    How exactly does this work and can anyone good with math help me figure out what I will have paid in interest by paying it off in 2 years vs. paying it off in 6?

    Heres how its going to go. We have a set debt payback plan and I will continue paying $500 a month until December. Starting January I will be paying chunks of the car off (around $5k a month) to pay it off in (or around) May 2009.
    Last edited by AudreyLeigh; 02-25-2008 at 10:10 PM.

  2. #2
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    Default Re: Question about car interest (paying off early)

    I want to know the answer to this, too. I'm $800 away from paying my car off! It would be cool to get money back, you know?

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    Default Re: Question about car interest (paying off early)

    2 years versus 6 years, just about 4000's worth of interest(saved)

    with car loans, unless your loan is a very simple "simple interest" loan, it is rarely that uncomplicated

    If it's a simple interest loan, it works like you would expect.

    If it's a pre-computed loan(usually only common with very bad credit), you are generally assed out if you pay early because the interest front-loaded is calculated to act as a built-in early pay off penalty
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  4. #4
    AudreyLeigh
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    Default Re: Question about car interest (paying off early)

    Thanks Sh0t. Sounds good to me.

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    Default Re: Question about car interest (paying off early)

    Damn. No cash back for me!

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    Veteran Member CollegeCutie21's Avatar
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    Default Re: Question about car interest (paying off early)

    If you go to Microsoft Excel, under SpreadSheet Solutions (for creating a new document), open up the Loan Ammortization Schedule.

    Type in your basic info on the loan, and it will spit out all the info for you.
    Then you can go to the individual payments and adjust extra payments accordingly, and it will instantly show you how it will affect the loan.






  7. #7
    AudreyLeigh
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    Default Re: Question about car interest (paying off early)

    I have no Excel (but I do have Open Office which is a knock off of Microsoft Office) I didnt know it had that feature! Im going to go see if mine has that feature.

    Edit: Nope no Spreadsheet solutions

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    Default Re: Question about car interest (paying off early)

    For a second I was thinking I would send you the file real quick, but then I remembered you don't have excel to open it.

    I'm dumb sometimes...






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    Default Re: Question about car interest (paying off early)

    there half a hundred online loan calculators, especially for car notes
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    Default Re: Question about car interest (paying off early)

    ^^^ that's true, I've just always liked having a file saved on my comp

    this one's not bad

    http://www.bankrate.com/brm/popcalc2.asp

    you could always just print it out






  11. #11
    Featured Member minnow's Avatar
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    Default Re: Question about car interest (paying off early)

    [quote=AudreyLeigh;1420780]Sorry if this has been explained before but I suck at the search function (and math) and finance and on and on....

    (revised)

    Heres what Im looking at. My car payment is $499.08 a month (I just pay an even $500)

    $358.48 goes towards interest
    $141.52 goes towards principal

    Im planning on paying my car off next May. I owe $24,333.45 on the loan. I have 61 Payments Left

    Original terms of loan

    APR 9.9
    Finance Charge $8920.51
    Amount Financed $27,013.25
    Total of Payments $36,933.76

    AL; Unless loan co. has a pre-payment penalty, it should be very beneficial to you to pay loan off early. Those interest/principal figures that you listed seem SERIOUSLY AMISS for an APR of 9.9%- even $358 monthly interest applied to initial ^ $27K loan works out to an effective APR of 15.92%!! As monthly pmts. are made, amt. applied to interest should go down, and principal applied should go up. If APR is really 9.9% with no "gimmicks" , the initial interest pmt. should be roughly $223, and get progressively smaller with each payment. Offhand, the figures listed under "original terms of loan" seem to be roughly in line with a 72 mo, 9.9% loan. Still, I'd do some rechecking. Good luck- offhand, I'd say you'll be saving at least $5K interest on your proposed payoff schedule.

  12. #12
    AudreyLeigh
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    Default Re: Question about car interest (paying off early)

    Thanks Minnow. Yes. It is a 72 month loan. I have 61 payments left. I guess I left out some information. I hate having a $500 a month payment and want to sell the car but I just did some research and altho when I bought it I got it at KBB value now I owe $8k more than its worth (1 year later) ...

    So, Im screwed...

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    Banned Melonie's Avatar
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    Default Re: Question about car interest (paying off early)

    you may also be screwed again on your 6 year car loan ... which may not be exempt from 'rule of 78's' interest calculation. Many states have successfully outlawed the use of the 'rule of 78's' ... but only for consumer loans of 5 years or less !!! This was actually a big factor in lenders making 6 year auto loans available.



    (snip)"The pre-computed Rule of 78s auto loans that do exist today tend to be found in the subprime market. Folks with less-than-perfect credit should be on the lookout.

    "Buy here, pay here" auto lots and lenders that specialize in offering loans to borrowers with badly damaged credit may offer these consumer-unfriendly loans.

    "All the ones I've seen have had really high interest rates," says Mark Eskeldson, an auto expert and author of CarInfo.com, a consumer information and advocacy Web site.

    "If a car dealer is trying to put you into a rule of 78s loan it's fairly safe to assume that the dealer has packed your interest rate -- he's inflated it." "(snip)

    (snip)"Let's say you're ready to pay off your 48-month auto loan a year early. Because you signed on for a pre-computed loan, you're on the hook for 48 months worth of interest even though you're paying off the loan in 36 months.

    But your lender is going to do you a "favor." You don't have to pay 48 months worth of interest. Instead, he's going to determine your payout amount including a "rebate" for those 12 months worth of finance charges you won't have to pay.

    But your payout amount won't be what you deserve. The reason? Using the "Rule of 78s" method, your lender applies more of your previous payments toward interest and less of your previous payments toward principal.

    Since less is applied toward principal, the amount you owe will be higher than expected. The earlier you try to pay off one of these loans the more you'll have to pay. The higher the interest rate, the more that payoff amount is going to hurt.

    "If it had overcharged the lender and undercharged the consumer, it would have disappeared decades ago," says Jean Ann Fox, director of consumer protection for Consumer Federation of America.

    "It's a dirty little secret.""(snip)


    You definitely need to check the fine print on your car loan to find out ...

    - whether it is based on pre-computed interest, such that you would owe the entire $8920 in finance charges regardless of whether you take 5 more years or one more month to pay off the auto loan

    - whether or not the 'rule of 78's' will apply to the interest calculation if the loan is paid off early

    If either of the above is the case, you're actually better off financially by simply making the normal payments on the normal payment schedule.

  14. #14
    AudreyLeigh
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    Default Re: Question about car interest (paying off early)

    Thanks Mel. Im going to look into that. All I have is the normal bill of sale thingy from when I bought the car but Ill go to the dealership and check it out.

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    God/dess Deogol's Avatar
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    Default Re: Question about car interest (paying off early)

    Oh man - you should have gotten your loan docs with the bill of sale too! Hopefully it is tucked away in there. They sure give ya a lot of paperwork I remember that.

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