@Anonymous wrote:
Hi all! I applied to refinance my 2012 Altima. My current APR is 13.99 and Penfed's refi starts at 2.99 for my car.
They asked me what term length I wanted. My current monthly payments are $329 but I could afford to pay up to around $395.
After looking at an amortization calculator, I chose 48 months ($293) over the 60 months ($238) , but when I calculate early payoff, paying $393/mo, I end up paying it in 36 months with either term.
Am I correct in deciding that the 48 month term is still better for me (assuming I maintain income stability) because if I pay even more, faster, that I will be paying more $$$ towards principal with the 48 month term option? Any cons (assuming the same income)?
Thank you!
Good car loans are done with simple interest; the required payment is the interest on the outstanding balance plus a sum that reduces the outstanding balance to zero in the agreeded term. (The sticky has a formula, and links to calculators.) Any excess payment is applied to the principal, which reduces the interest that's owed the next month, which means the regular payment pays more of the principal than it was scheduled to, which reduceses the interest that's owed the next month, .... Sleezy sub-prime car loans are sometimes still done with precomputed interest, which penalize prepayment, but they're sleezy subprime, not good bank loans.
So, if the rate is the same -- and your numbers 293 for 48 mo or 238 for 60 seem to imply they are -- then it doesn't matter. If you pay the 60 mo at $293, you'll pay it off in 48 months, and pay the same amount; if you pay 329, you'll pay it off in about 42 months; if you pay 393, you'll pay if off in about 36. Paying off in 36 months saves you about 200 bucks in interest. (and lots more as opposed to paying 14%!) The advantage of a longer term (again, at the same rate, which isn't always going to be true) is that the payments are lower, whcih allows flexibility if ou can't always pay extra. The disadvantages are it can lead to slacking, and only paying the scheduled payment, which costs you money. It also means you're making payments (if you go the full term) payments on a car that's older, and you'll have to keep it more insured than if you didn't have payments.
