Submitted by SupplyChainOne t3_10pdf62 in personalfinance
In September last year I bought out my lease, put $5,000 down, for a final loan amount of just under $15,000. This is all through Hyundai Motor Finance. My interest rate is 5.5%.
Aside from making a few one-time extra payments, I setup auto-pay for the 1st of every month, at my required payment amount, $345.83/mo. My monthly payments are "ahead of schedule" by 91 days.
I'm noticing, [see screenshot here], interest makes up a little over 15% of my monthly payment. As you can likely tell, this is my first car loan, and I am unfamiliar with how everything is calculated.
At a 5.5% interest rate - why is 15% of my monthly payment going to interest? Why shouldn't it be... 5.5%?
Am I essentially paying for expected full-term interest (if I were to make 0 additional payments above minimum monthly payment)?
I hope that makes sense. Thank you!
Werewolfdad t1_j6jr58e wrote
5.5% is how much the loan costs you annually. (Really, its more like Balance * 1/365 * 5.5% per day)
The 'split' between principal and interest is called amortization
https://en.wikipedia.org/wiki/Amortization
https://en.wikipedia.org/wiki/Amortizing_loan
Its why your payment doesn't change for the life of the loan