Question about paying off a car loan early

if you pay the loan sooner than the term, do you get some of the interest deducted from the total you would have paid?

so if my loan is 4 yrs and I pay it off in lets say 3 yrs, would I get the interest deducted off that 1 year?

Re: Question about paying off a car loan early

Not sure if I understand the question.

<removed speculation>

ETS: Now thinking about it, i'm not sure either.

Message edited 10/17/2008 11:05:00 PM.

Re: Question about paying off a car loan early

sorry, I'll try to explain it better.

lets say my car payment is $350 a month for 4 yrs and I start adding extra $ to the monthly bill. do they automatically lower the amount of interest owed according to the balance due?

Message edited 10/17/2008 11:05:22 PM.

Re: Question about paying off a car loan early

I don't think so. I was able to make extra payments & paid my car off 15months early, but my monthly payment amounts were never adjusted. Maybe that was own my fault because I didn't think to question it.

Re: Question about paying off a car loan early

Looking at my payments online, they never show me how much my 'final' balance would be including interest. They just show me my principal balance, and that decreasing as I make my monthly payments, and my extra payments to the principal.

The interest you are charged is adjusted monthly. Using fake numbers, Month 1 you owe 20K; so your interest is based off of that. You make a payment of 500 dollars, so now in month 2 you owe 19,500; so your interest is based off of that, and will be less than the month before.

So as you make extra payments, your principle goes down faster, which means your interest goes down faster, which means you pay off faster.

I think.

Re: Question about paying off a car loan early

DH says yes, you should get that interest back if you pay it off early.

Re: Question about paying off a car loan early

Posted by Blazesyth



The interest you are charged is adjusted monthly. Using fake numbers, Month 1 you owe 20K; so your interest is based off of that. You make a payment of 500 dollars, so now in month 2 you owe 19,500; so your interest is based off of that, and will be less than the month before.

So as you make extra payments, your principle goes down faster, which means your interest goes down faster, which means you pay off faster.

I think.

Re: Question about paying off a car loan early

Posted by LittleBlueBug

Posted by Blazesyth



The interest you are charged is adjusted monthly. Using fake numbers, Month 1 you owe 20K; so your interest is based off of that. You make a payment of 500 dollars, so now in month 2 you owe 19,500; so your interest is based off of that, and will be less than the month before.

So as you make extra payments, your principle goes down faster, which means your interest goes down faster, which means you pay off faster.

I think.

I used to work in auto loan collections and you are right. You don't get an interest rate deduction per se, but you lower the amount of interest you would pay over all since you are paying it off early. If you were to pay the loan off a year early, you are saving yourself a years worth of interest you would have paid, but on a progressively lower amount (since the amount you pay in interest is lower as your balance gets lower, even though interest rate stays the same). You save money in the long run by paying it off early.

Re: Question about paying off a car loan early

thanks everyone!! this was very helpful!

Re: Question about paying off a car loan early

I called who I had my car loan with first to confirm & they said yes.

Re: Question about paying off a car loan early