Question on automotive loans

Submitted by Dynasty__93 t3_1282a2y in personalfinance

So, I took out a new car loan today and I have a quick question I am sure the answer to is "yes"... If I purchased a car, used the finance department through the dealership to do financing through a local credit union for an 84 month loan... And I was to instead of paying $570 a month (minimum payment) but instead worked like a madman at paying off the debt and paid $1,200 a month for 30 months and paid it off I would be debt free, correct? I for some reason feel like this is an obvious yes, but as someone who has always driven junker vehicles I just wanted to make sure - obviously this would be the ideal thing to do so a person is debt free. But for some reason I feel like I would still owe the interest as if I had the loan for the entire 84 months.

Another question I have is say I was to sell some assets (stocks) and pump $7k into that loan right now, that would make the principal AND interest owed per month lower, correct?

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Comments

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Winecoffeetea t1_jeh0vyj wrote

Also make sure that you can pay the extra directly to loan balance and not to loan +interest. The documentation should explain how to do that

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homeboi808 t1_jegw1ds wrote

If you can make extra payments without penalty, then once the balance is over you are done. And paying extra not only gets it over faster but even saves you money overall with less interest.

> that would make the principal AND interest owed per month lower, correct?

Monthly payments stay the same (except maybe last payment), just end sooner.

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StoopitTrader t1_jegzfvz wrote

I thought it was very rare for new car loans to have any sort of prepayment penalty. I've heard of it more on buy here pay here loans. I found this:

https://www.experian.com/blogs/ask-experian/how-to-avoid-paying-prepayment-penalty/

"Thirty-six states and Washington, D.C., let auto lenders charge prepayment penalties for loans with terms of 60 months or less. Lenders are prohibited by law from charging a prepayment penalty for an auto loan of 61 months or longer."

I would definitely try to pay this sooner and avoid a lot of the interest. Taking the loan down to 30 months would save you a ton in interest unless you loan rate is very low. As others have stated, read your loan contract but I would be surprised if there's any penalty.

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tbone1111 t1_jegw9mr wrote

You're absolutely right, but as the commenter said, you may be barred from paying too much too soon. Check your contract

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Dynasty__93 OP t1_jegynxx wrote

There are contracts out there that make it impossible to pay off a loan too quick? That is crazy!?

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Scary-Celebration-98 t1_jeh44ml wrote

Yep, credit unions are nasty for that. Private lenders like chase, not so much. Mustang was financed through credit union. Prepayments beyond $1000 were not allowed. No more than 2 prepayments a year.

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