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Embedded interest

faisalbasha

Ready to race!
If I finance a car for 8 years for 2.99% and decide to pay it off shortly after, is the interest embedded in the final price no matter how long it takes me to pay off the car or do I save on the interest the sooner I pay off the car ???


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BlueHen

Drag Race Newbie
Location
Delmarva
The way an amortization schedule works on a typical loan is that you pay interest throughout the life of the loan, but it is graduated on a front-loaded basis. On a $400/month car payment, you'd be paying, say, $90 interest and $310 principal the first month, then by the middle of the loan, maybe $40 interest and $360 principal, and maybe by the beginning of the last year $10 interest and $390 principal, etc.

Paying off early at any time will save you all the remaining interest due on the amortization schedule. Whenever you call and get a payoff amount, that is the total of remaining principal payments due plus a token small amount for prorated interest in your current monthly billing cycle.
 
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