Auto loans typically last anywhere from two to eight years, depending on the amount you borrowed and the type of loan you chose. If your loan term is longer than you want it to be, you can make extra payments to pay off your car earlier than expected and save some money on interest.
Look Up Terms
The amounts and timing of paying off your auto loan early will depend on the terms of your loan. Look up your starting date, interest rate, the length of your loan term and the current loan balance on your most recent statement or by logging into the loan management section of your lender's website. If you cannot find this information, call the lender for help.
By Hand
Divide the interest rate by 100 to convert it to a decimal and divide by 12 to get the monthly decimal interest rate. For example, 8.5 percent interest becomes 0.007083. Multiply the monthly decimal interest rate by your current loan balance to calculate the interest for the month. For example, multiply a balance of $3,821 by 0.007083 to calculate $27.06 in interest. Subtract the interest from the amount of the payment you plan to make to find out how much of your payment goes toward the principal. for example, with a payment of $800, $772.94 goes toward principal. Subtract the principal payment from your loan balance to find your new principal balance. In this case, $3,821 minus $772.94 leaves a balance of $3,048.06. Repeat the process for each monthly payment you plan to make, and for the last payment, just add the monthly interest to the loan balance to get your final payment amount.
Online Calculators
Many websites offer online calculators that will do the math automatically for you. This allows you to try different payment scenarios and see which one best meets your goals for paying off your vehicle. In most cases, you need to enter the interest rate, loan term, original or current loan balance, and the amount of the payment you plan to make each month. The calculator will show you a schedule of payments, your new payoff date and how much money you will save on interest.
Prepayment Penalty
Some lenders impose prepayment penalties on people who pay off their auto loans in full before a specific date set in the contract. Look at your contract or contact the lender to find out if you have a prepayment penalty. It might be a specific percent of the remaining balance, a percent of the initial loan amount or a flat fee. If you were planning to pay off your loan during the time in which a penalty is imposed, add that amount to the cost of an early payoff or delay your payoff until after the penalty window is over.
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