topic Re: Calculating Interest in Auto Loans

Calculating Interest

masscredit — Sat, 20 Apr 2013 15:43:39 GMT

My current auto loan is through Cap 1. Credit wasn't great after a BK so I ended up with a 17.1% rate for 72 months when I got the loan in September of '11. Payment is $283.00 per month and I pay $295.00. I've been watching how much the loan amount changes over the last few months. It only goes down by about $150.00 per month. I know mortages are usually mostly interest in the beginning but is it the same for auto loans?

I tried to refi last Summer and didn't think I'd have a problem doing that but I was declined by a few banks. If I remember correctly, the reasons were the BK and I have some tax liens. The liens aren't going anywhere.

Re: Calculating Interest

webhopper — Sat, 20 Apr 2013 15:52:39 GMT

Bank rate has a calculator where you can plug in your principle balance, interest rate, and term...

It will show you the amortization table.

Amortization table will tell you how much of each payment goes to interest and how much goes to principle. If you compare the amortization table for a 72 month, 60 month, and 48 month loan, you'll really see where going those shorter terms will help you pay less over time.

Good luck! Feel free to post back here if you have questions about how an amortization table works!

Re: Calculating Interest

FocusedAndDetermined — Sat, 20 Apr 2013 17:50:35 GMT

Here's what I do. I make my scheduled payment, then put an additional amount toward principal, only. This brings doen the balance, thus interest amount a little faster.

Re: Calculating Interest

Anonymous — Sat, 20 Apr 2013 17:56:44 GMT

Your minimum payment is the interest plus the minimum amount of principle to get the loan paid off before the end of term.

For example, you borrow $12,700 for 72 months at 17.1%.

Each month your minimum payment will be $283.

Interest will be high relative to the small payment because the term is so long. At the start you will have to pay $180 in interest each month, and as the balance goes down the interest charge will go down. Since the payments are constant, your principle will get paid down faster at the end of the loan because the principle is lower.

Monthly interest is calculated by multiplying the principle by the APR then dividing by 12.

So, later on when you only owe $5,000 on the loan. Your interest charge will be much lower, around $75. Which means more of your payment will go towards the principle.

I would recommend you make much larger payments. I would generally advise a 36 month loan. What that means is even with a high APR, much of your payment is still going towards the principle. It also helps to prevent negative equity.

If you pay $500 per month you will have something more like a 3 year loan. Taking your interest paid from $7k to $3k.

Make large on time payments for a good amount of time, and you will be able to refi at a lower rate. Having baddies can be overlooked a bit if you have good equity.

Re: Calculating Interest

masscredit — Sat, 20 Apr 2013 18:29:11 GMT

I just ran the nunbers at bankrate.com. Ouch! They would look a lot better if i can get that loan refinanced and down to maybe 6.9%. $ was a little tight when I got the loan so I streatched it out just in case. The rate is the killer though. I'm going to try to step up my payments a little more, let a bunch of inquiries from last Summer fall off in a few months and try to refi again.

Re: Calculating Interest

webhopper — Sat, 20 Apr 2013 23:55:21 GMT

@masscredit wrote:
I just ran the nunbers at bankrate.com. Ouch! They would look a lot better if i can get that loan refinanced and down to maybe 6.9%. $ was a little tight when I got the loan so I streatched it out just in case. The rate is the killer though. I'm going to try to step up my payments a little more, let a bunch of inquiries from last Summer fall off in a few months and try to refi again.

That sounds like a good plan!

The calculators can make your eyes hurt when you first start using them, but I'm all about analyzing the situation and coming up with the best solution that will save you money in the long run.

Good luck!

Re: Calculating Interest

Anonymous — Sun, 21 Apr 2013 00:26:50 GMT

What kind of car, model, make, year, miles ect...

Re: Calculating Interest

Anonymous — Sun, 21 Apr 2013 12:09:48 GMT

OP, I used to make the full payment amount a few days prior to the due date. Now I split my auto payment into 2, one near the 15th and the other near the 1st. It still gets paid before the due date (around the 4th of the month). Doing this method knocks some interest and goes towards the principle.

Re: Calculating Interest

Anonymous — Sun, 21 Apr 2013 16:05:46 GMT

@Anonymous wrote:
OP, I used to make the full payment amount a few days prior to the due date. Now I split my auto payment into 2, one near the 15th and the other near the 1st. It still gets paid before the due date (around the 4th of the month). Doing this method knocks some interest and goes towards the principle.

That's a good plan, pay extra and often.