Early Repayment of Car Loan

Rorschach on 05/07/2017 - 13:15
Last edited 05/07/2017 - 14:51

Hey gang,

So, a buddy of mine has 10K to put forth as deposit for a car, he intends to buy one worth around 30K taking a loan for the rest of the amount. He wonders if he can pay off the car loan for the remaining 20K in a year or so?

We see from a bit of research that there is an early fee of $100-200 for many banks, and that some banks still charge you the entire interest owed for the period the loan was taken for?

Has anyone around here done this?

Is this worth doing, or is it better just to keep paying the loan for the entire period (5 years or more)?

EDIT: Disregard the above line. Thanks to John Kimble's snarkiness, I get that we can do this calculation ourselves.
Any other opinions about this process is still appreciated.

Automotive

Comments

  • BensonP on 05/07/2017 - 13:20
    +1

    Bank of Melbourne definitely do early payout with no fees.

    Real your term and conditions. Or ask the dealer.

    • Rorschach on 05/07/2017 - 14:51

      Thanks for the suggestion, will check with them.

  • John Kimble on 05/07/2017 - 13:20
    -1

    Maths helps here.

  • bobbified on 05/07/2017 - 13:48
    +2

    there is an early fee of $100-200 for many banks

    Is this worth doing, or is it better just to keep paying the loan for the entire period (5 years or more)?

    To work out the total interest payable on the loan over the entire period:

    Minimum Monthly Payment x Number of months until the loan is paid off (60 months on a 5 year loan), then subtract the original amount borrowed.

    The interest over the entire period will almost always end up more than the $100-$200 termination fee, so if possible, pay out the loan if there's extra cash floating around.

    I've seen loans where that early termination fee is only payable if terminated within the first year or so. If that's the case, the loan can be paid out in a year, minus $1 (to keep the account open). Then exactly a year plus one day, deposit $1 (plus interest).

    I would never take a loan where the entire calculated interest must be paid regardless of when the loan is paid off. It's just silly.

  • currentfad on 05/07/2017 - 14:02

    Tell us the monthly payment, interest rate and period remaining so we can calculate the future value of the loan. If this figure minus current balance is more than the prepayment fee then it is worth it.

    • John Kimble on 05/07/2017 - 14:07
      +2

      Don't be ridiculous, we must be able to answer with the minimal detail provided.

    • Rorschach on 05/07/2017 - 15:02

      @currentfad
      Thanks for the offer!
      What we're looking for is advice if people have actually paid off loans sooner, and if it is worth it (with all the fees and panalties)? Not actual calculations on if interest is more either way :)

      • BargainHunterKD on 05/07/2017 - 15:05
        +1

        I took out a car loan over 5 years (to have lower monthly repayments should a money issue arise) with the intention of paying it off early. I paid it off in 8 months and because the loan was variable there were no fees for doing so.

  • pantsparty on 05/07/2017 - 15:34

    What are the terms of the loan your friend is thinking of getting? What do the terms say in regards to paying out early? Read and the answer will reveal itself….

    This seems like a question best asked to the finance provider, not to randoms on the internet who have had financing in the past with any number of finance providers all who would have different terms.

  • TheBilly on 09/07/2017 - 16:36
    +1

    Depends on loan. Read the T and C. I have paid out a dealer loan $495 fee and that was it.

    One thing to note when you get a car loan, most financiers take interest up front, so first year of repayments may be 90% interest 10% principal, then it gradually decreases as time goes on.

    Your mate will have to make minimum repayments plus additional to pay off the loan, however in 1 year those minimum repayments might cover all the interest anyway. Depends on loan though, not all are the same.

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