Why pay off your auto loan early
Most auto loan lenders allow borrowers to prepay on the principal balance of their loan without a prepayment penalty. If you can manage to either increase your payments or apply a lump sum you may receive toward the principal balance, you should think about doing so.
Paying off the auto loan early shortens the period of time that the loan is in place and also decreases the total amount of interest that you will pay on the loan in the long run. While it may be difficult to part with a larger sum up front, paying off your loan early can potentially save you thousands of dollars overall. An auto loan early payoff calculator like this one can help you figure out how much.
Vehicles are lasting longer – and so are auto loans
Cars last a lot longer than they used to. Whereas 100,000 miles used to be considered a pretty good indication your vehicle was nearing the end of its useful life, these days it's not uncommon for a car to go 200,000 miles or more – and pickup trucks can last even longer. Better engines and transmissions, improved corrosion protection, more durable components – all add up to vehicles that hold up a lot longer than their predecessors.
With cars lasting longer, lenders are willing to make longer auto loans as well. Auto loans of five, six, even seven years are increasingly common – because the lender is confident the vehicle will keep running that long.
Longer loans mean lower monthly car payments - which is important when you're looking at $25,000 or more for even a basic new vehicle. Or when a good used car can easily run $10,000. Longer loans mean a lower monthly payment and a more affordable vehicle.
Unfortunately, those affordable monthly payments cost you money over the long run. Interest charges pile up over time and with the way loan amortization works, each additional year you add means disproportionately higher interest costs over the life of the loan. In fact, you may be surprised by how small the difference in monthly payments can be between a six-year and a seven-year auto loan, due to the additional interest costs over the life of the loan.
So maybe you've bought a car with a long auto loan and now you're how much faster you could pay it off by paying a bit extra each month. Or maybe you're thinking about buying a vehicle with a long-term loan for the lower minimum payments, but actually intend to pay it off a year or two sooner and are wondering how much extra you'd have to kick in each month to do that. That way, you have some flexibility in case you're short of cash at some point.
This Auto Loan Early Payoff Calculator can tell you how much faster you can pay off your loan by paying a bit extra every month. It's also easy to work the calculation in reverse to figure out how much extra you need to pay to shorten you loan by a certain length of time. It'll also tell you how much interest you can save over the life of the loan in the process.
Using the Auto Loan Calculator to determine an early payoff
This calculator uses your original loan amount, length of the loan and interest rate to calculate your current monthly payments. From there, enter the number of months left on the loan, then enter how much extra you'd like to pay each month to see how much sooner you'd pay it off.
You can adjust that figure using the slide bar to experiment with how varying the additional payment would affect how early you can pay off the loan and how much interest you'd save. Your result appear instantly at in the blue field at the top of the calculator and just below it at right as you adjust the extra payment figure.
Start by entering the number of months remaining on your car loan, then enter the full length of the loan, in months. If you want to see the effect of making extra payments over the entire length of the loan, just enter the full length of the loan in both places.
Next, enter the amount of the loan and the interest rate. The calculator will immediately display your regular monthly payment for the loan in the place indicated. Next, enter any additional amount you'd like to pay each month. The number of months you'll shorten your loan by and your interest savings will appear at the top of the page.
If you want to shorten your loan by a certain length of time and want to know how much extra you'd have to pay every month to do so, use the slider to adjust the additional monthly payment figure until the blue field at the top shows the length of time you want to shorten your loan by.
You can also use this as a standard auto loan calculator by simply entering "0" in the additional monthly payments field and it will figure your regular payments and generate a report showing your total payments and interest.
Amortization table and interest
Expanding the "Auto Loan Balances and Interest" section below the Auto Loan Payoff Calculator will display a graph illustrating the rate you will pay down your loan with and without any additional payments, plus your accumulated interest charges over time.
For the full amortization schedule, choose whether you want to see monthly or annual amortization, then click "View Report" at the top of the page. You'll then see a page showing how much you'll shorten your loan by, the graph illustrating your amortization, a summary of the loan and a line-by-line table showing the amortization of the loan over time and comparing regular vs. accelerated payments.
If you're looking to trade in your car at some point in the future, the amortization schedule is useful in that it lets you know exactly how much you'll still owe on the loan at any point in time. You can then use this information, combined with the vehicle's depreciation, to estimate what your trade-in value would be.