raidernixon

I wasn't really sure where to post this, sorry if it needs to be moved. I will be financing my new 11' GT once its built and at the dealer. I've never financed before, so I was needing help figuring how exactly this works. My goal is to get this car paid off as quickly as possible. Technically I could pay off the car in a little under 2 years. I would like to keep the obligated payments lower though just in case something happens and I need the extra cash for a few months.

Say we had a $30K Mustang and we decided to finance for 72 months @ 6.9%. That leaves you with a monthly payment of $510.03/month. 72 payments turns this into $36,722, resulting in $6,722 paid in interest.

My question is this: When you enter a finance agreement, are you obligated to pay the full $6722 in interest even if you pay off the car early by sending in much larger payments? Say 24 months instead of 72?

Hopefully my question makes sense. Thanks for any help.

Rob

Lee

If the financing is through a reputable company you will not. The interest SHOULD be calculated monthly based on the unpaid balance just as a home mortgage is. You SHOULD be able to pay extra each month and reduce both the time until the loan is paid off and the interest. I say SHOULD because I'm unfamiliar with the laws in Texas and it's quite possible that a less reputable company could write a contract in a manner that requires you to pay the full amount including interest even if you pay it off early. There can also be pre-payment penalties. If the financing is through Ford credit or a major bank you are probably safe. Read the contract and ask questions.

monkeystash

The majority of car loans don't have prepayment penalties. However, like said above, ask and make sure.

YardSpecial

All loans make you pay the interest UP front at a higher percentage then principle.

ALWAYS go for the lowest rate no matter what is the best deal and get PRE-APPROVED at a bank. Never let the dealer do it for you.

A bank goes off your TRUE credit score, dealer screws you over every time.

cdynaco

As long as there is no pre-payment penalty you can pay it off in 6 mos (or whatever) if you like and only pay interest for those 6 mos. Pre-pmt penalties don't happen much anymore unless its a hard money loan. But always ask and never accept a loan with a PPP.

My Dealer (for my brand X winter car) shopped my local credit unions and the rate I got was the same if I walked in my CU door ahead of time. My FICO is in the low 800's, but the auto Beacon was 750. They all have slightly different criteria.

I'm on a fixed income so I had to keep the pmt pretty much the same and my trade paid off the old loan, but I had to stretch to 84 mos. @ 5.24% to keep the pmt in line with my current budget. I consider that a very good rate considering length and a 100% loan.

So here's my plan - $223 is the pmt for all 84 mos but in a year I'll have a few bills paid. So months 13 - 24 I'll up my pmt $50 to 273. Then a year later I'll have more bills paid. So I add another $25 - total pmt now $298 mos 25 - forward. Loan paid off in 64.8 mos.

So I'm countering the fact that over 60 mos. they wouldn't give me a rate in the 4's by shaving 20 mos off the back end of the loan. (although yes, amortization front loads interest)

I've done this "debt acceleration" thing many times over the years. Just takes some discipline. Best thing you can do IMO is buy a TI 'compound interest' calculator. You can figure loans, compound growth of your savings, inflation, etc.

cimag

If you can pay it off in 24 months but want some room go for 48 and you'll get a better rate than 72 months.

Ltngdrvr

If your credit score is good enough Ford credit has 0% for 36 months, that'll save you a bunch. Have the dealer put in the credit app and see what they'll do for you.

If you do have to get a conventional loan and you pay extra in addition to your payment, see if they will apply the extra straight to the principal, some places will, some won't. I do believe that Ford credit does it that way automatically without you even having to ask. This will reduce the duration of the loan and the amount of interest you pay.

wannabe

Not necessarily true. I once got 0.9% Chrsyler financing even tho I had a pre-approved fill-in-the-blank check in my pocket. Not ALL dealers are out to shaft everybody.

raidernixon

Thanks everybody...exactly what I was looking for.

Karpro

Not true. My dealership works with 7-10 different lending sources and easily 90% of the time I am able to get the same or better rate for the customer than they are able to get themselves

To the original post if you can swing it do the 0% through Ford

cdynaco

Yes its important that you specify the extra towards prinicple. I had some clients in years past that were getting screwed with a VA loan because they weren't applying the extra correctly.

I think the best way is with a separate check/transaction for the extra with a note included. Then confirm that after the pmts are posted.

airforcedefender

I went to the dealer last week with 4.49% pre-approved, but the dealer found 3.65% for 72 months which saved me almost $30 a month in payments. Dealers generally find awesome rates for those with 740+ credit scores. If your credit is so-so, your best bet is to get pre-approved from a institution/bank with whom you already have an established relationship. Back when my credit was just ok, I could always count on my local credit union back home to hook me up with a good rate.

Bottom line: Even if you're pre-approved, make the dealer work to get you the best rate possible. It should be part of negotiating your deal every time you shop for a car...

jokerstars

I wonder if a dealer could beat Bank of America's 60 month 3.2% rate?

fritzOSU03

I talked with my personal banker at Chase and she claimed that the dealers around here intentionally undercut every rate she gives out just to get the financing business for FoMoCo Credit. We'll see when/if mine shows up.

airforcedefender

3.2% for 60 is an awesome rate. I'm not saying the dealers will beat your best/pre-approved rate, but you should make them shop for it in case they're something out there you don't know about.

Five Oh Brian

You are wrong and I resent your comments. I work at a dealership and did finance for two years. You simply CANNOT make blanket statements that include words like "never" or "every." Not accurate, not fair, and not true.

I take pride in working for a dealer the does the right thing for its customers. We often beat the rates/terms that customers bring in from their own banks or credit unions. A good dealer will offer a fair price not just on the car itself, but also on the other components of the transactions (accessories, warranties, financing, etc.).

Five Oh Brian

Dealers are not banks and we do NOT loan the money, therefor we can't "beat" banks. We shop banks & credit unions to find a deal that the customer qualifies for and would be happy with. That said, we've recently done some Bank of America loans at their 3.2% rate.

cimag

The fact that Bank of America is lending for 5 years at 3.20% with a car as collateral explains a lot about their financial problems in the past (not sure about the present...). It's just a poor risk pricing... Ford can do that to sell cars, but a commercial bank...
All credit applications count as one if they're done in a reduced time frame, so my advice would be to get pre-approved by someone and then see what the dealer can get. It's always important to have a plan B.
Don't look only to the monthly payment, for a given payment it's always better a higher rate with a lower fee than a lower rate with a higher fee.

YardSpecial

(will keep my comments to myself about YOUR dealership)

Um ok.........If you say so. Have not see many dealers GO the extra mile. There out ot make a buck plain and simple. (at the customers expense)

Just about as bad as the lousy dealer service as well.

jokerstars

Well, I also have really good credit. 770.