Car loan payoff calculator

How a car loan is paid off

Most car loans have a fixed monthly payment. Each one first covers the interest that built up since the last payment, and the rest pays down what you owe. Take the loan the calculator starts with: $24,000 at 7.9% APR over five years, which is $485.49 a month. In the first month, interest is $24,000 × 7.9% ÷ 12 = $158.00, so $327.49 of the payment comes off the balance. Next month's interest is charged on the lower balance, so a little more of each payment goes to the loan itself, until the 60th payment clears it. Over the five years you pay $5,129.07 in interest.

Extra each month, or a lump sum?

Both go straight to what you owe, as long as your regular payment has already covered the month's interest. Here's what each does to the same loan:

The one-time $1,500 saves a little more interest than $50 a month for the life of the loan, even though $50 a month adds up to more money, because the lump sum arrives early and stops interest on that $1,500 for the rest of the loan. The earlier extra money goes in, the more it saves. Together they take ten payments off the end.

Check how your loan charges interest

Before you pay extra, look at your loan contract for two things.

• Simple or precomputed interest. Most car loans use simple interest: it's charged on what you still owe, so paying it down sooner means less interest, as in the table above. A loan with precomputed interest works out all the interest when you sign, and extra payments don't reduce it, though paying it off early may get you some of the unearned interest back. The Consumer Financial Protection Bureau suggests making sure your lender uses simple interest if you plan to pay early.
• A prepayment penalty. Your contract says whether paying the loan off early costs a fee.

When you send extra money, make sure the lender applies it to the principal now rather than holding it toward next month's payment. Many lenders let you choose this when you pay; check your next statement to see that the balance dropped by the extra amount.

Is paying it off early worth it?

It often is, but not always first. Some things to weigh:

• Higher-rate debt. A credit card at 22% costs far more than a car loan at 7.9%. Extra money saves more there; the debt payoff calculator shows the order that saves the most.
• A very low rate. On a 0% or promotional rate, paying early saves little or nothing in interest. It still frees up the monthly payment sooner.
• Savings for surprises. Money sent to the loan is hard to get back. Keep some aside first, so a repair bill doesn't land on a card. Sinking funds help with costs you can see coming, like insurance and tires.
• Selling or trading the car. If you owe more than the car is worth, the difference has to be paid when you sell or trade it, or rolled into the next loan. Paying down the balance shrinks that gap.

About the math

Each month, interest is the balance × the APR ÷ 12, rounded to the nearest cent, and then the payment is applied. A one-time payment is added to that month's payment, after that month's interest, so interest is lower from the next month on. It's the same method UrBudget's loan planner uses. The calculator assumes the rate stays the same and nothing new is borrowed.

Many car lenders charge simple interest by the day, for the exact days between payments, so your statement can differ from these figures by a few dollars, and paying earlier in the month saves a little more. A payoff quote from your lender includes interest up to the payoff date and is the amount to use when you're ready to pay it off in full.

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In UrBudget

UrBudget's loan planner does the same with your real car loan, next to the rest of your budget.

• It works from the loan's account, so the balance is what you still owe after the payments you've recorded.
• Enter the rate, the payment and an extra amount, and it compares the two side by side: payments, payoff date and the interest the extra saves, with the full amortization schedule.
• Record a payment and it's entered as a transfer to the loan, with that month's interest. A one-time extra payment later in the month goes entirely to principal.
• It can set the payment category's target to the monthly payment, so the money is set aside every month.

• Loan payoff calculator
• Debt snowball and avalanche calculator
• Credit card payoff calculator
• Sinking funds for irregular bills