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Advice on early Repayment of Car Loan
Comments
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That would only be advisable if the interest you earn on saving the money in your bank is more than the interest you are being charged on the car finance loan.
If the interest on the car finance is high (i.e. anything above 5%) then reduce the term and keep paying the same amount (ideally keep overpaying as much as possible whenever possible too).0 -
Don't I end up paying the same amount? I.E A reduced term on the larger loan amount works out at the same interest paid overall as a reduced loan amount on a longer term?
Sorry I missed the point about wanting to keep the loan longer to enable you to save for the balloon payment. I was advocating doing both; reducing the loan amount and reducing the term.
If you do want to keep the term the same, I would probably sill advocate putting the money you save on the monthly cost towards overpayments on the loan each month, rather than in your bank ready to pay the balloon.AFAIK, repayments after a certain point will start reducing the balloon payment.0 -
That's a good point. Thanks!0
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Even if you pay your loan off sooner, or make extra payments, the amount of total interest you pay does not change.
The amount of interest you pay using precomputed interest will be the same as it is for simple interest if you make all your payments according to the schedule. If you make additional principal-only payments under this type of loan, the lender may first apply the extra payment to the interest balance precomputed over the life of the loan, rather than to the principal balance.
Can you explain this again in simpler terms? I'm not sure i quite understand.0 -
Even if you pay your loan off sooner, or make extra payments, the amount of total interest you pay does not change.
The amount of interest you pay using precomputed interest will be the same as it is for simple interest if you make all your payments according to the schedule. If you make additional principal-only payments under this type of loan, the lender may first apply the extra payment to the interest balance precomputed over the life of the loan, rather than to the principal balance.
Originally posted by SameProse
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Can you explain this again in simpler terms? I'm not sure i quite understand.
Don't worry about it - Its complete and utter nonsense - there's nothing to understand0
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