Car Loans

[BOSSHOG]

I'v developed a headache with information I thought I heard but can't track down. Do you have to pay off all of the interest on a car loan regardless of when you pay the loan off? We've been fortunate not to have car loans over the years but am contemplating one soon. I know we can pay the mortgage principal forward and the interest goes down correspondingly but I think I heard that was not the case with car loans. Any steerage in the right direction would be appreciated because on this subject I have been rudderless so far.

[pscot]

1. Not in my experience

But I've generally borrowed from my credit union. I seem to remember that banks use something called the rule of seven/eighths, which results in a modest surcharge for early payoff. Can't swear to that. I would not sign a loan agreement that didn't allow early payoff. Car loans are too much of a pain in the ass to live with for very long.

[thoughtanarchist]

2. I had always heard this

yet last spring when I helped a friend buy a new vehicle the dealer finance person said that if the loan was prepaid early you saved on the interest. Naturally suspicious of anything within 500 feet of a car dealership, I carefully examined the agreement and I saw no such clause in the financing contract that mandates that all interest had to be paid on the loan if it was paid off early.

The interest on a 4 year car loan is typically only a few hundred bucks anyway.

A good piece of advice is to ask for a copy of the finance contract and take it down to the loan officer at your local credit union. They'll usually be happy to help you parse through the legalese and let you know if they can give you a better deal.