When does it make sense to do a car loan accelerated payoff, to pay off your car loan early?
By making a small additional monthly payment toward principal, you can greatly accelerate the term of your auto loan and, potentially realize significant savings in interest payments. Many homeowners have done this by paying an additional amount to principal each month, thus cutting both the length and the interest cost of their mortgage, without the upfront cost (and hassle) of refinancing.
This new calculator from Autobytel will help you estimate the potential time and
interest savings from a car loan accelerated payoff.
To use the calculator, enter your original loan balance, the annual percentage rate, the initial term in months, the number of payments already made, and your proposed additional monthly payment.
For example, let's say a mediocre credit score and the general tightness of credit meant that last year, you could only get a $25,000 loan at a rate of 8% for a term of 60 months. You've made 12 payments. A year later, your financial situation has stabilized, and you can afford to pay an extra $60 per month on your auto loan, going from around $507 per month to $567. If you do, you could save $447 in interest ($3,568 vs. $3,121) and you'll own your car free and clear a full 6 months sooner than under your current schedule (4.0 years vs. 3.5 years).
Or let’s say 9 months ago you bought a subcompact, with a 60-month, $13,000 loan at 8%. But your personal situation has changed, as you've gone from single to married stepparent. A minivan is not too far off in your future. By paying an extra $110 per month on your current car you would not only save $700 in interest ($2,079 vs. $1,379), but you'd own the vehicle outright a full 1.5 years sooner than under your current schedule (4.3 years vs. 2.8 years).
In many circumstances, a car loan accelerated payoff can really pay off for you.