[TMNT]

I have never purchased a brand new car so I am wondering how monthly payments plan out.

What I am wondering is if monthly payments can change depending on how much money you pay over your minimum monthly amount.

For example: If I where to get a car that cost $30,000 and my monthly payments for the life of the loan was $500 for 60 months. Lets say 6 months from now I send in a check for $5,000. Will the monthly payment amount recalculate and decrease for the remainder of the loan period? Or will the $500 monthly rate stay fixed regardless of how much money you pay off?

I thought no, but someone told me otherwise. So what's the real answer?

[GeorgiaTech335coupe]

Wouldn't change, unless you were able to refinance into a new loan. Once a loan is set, it is done.

[montreal_bimmer]

they dont change

[johnc_22]

Originally Posted by TMNT

Lets say 6 months from now I send in a check for $5,000. Will the monthly payment amount recalculate and decrease for the remainder of the loan period?

You will reduce the amount of interest you pay throughout the life of the loan, and pay it off sooner than 60 months, but the remaining payments stay the same. If you have a low interest loan think about doing something else with the $5K. If your interest rate is really high and you have an extra $5K then put it towards the car.

[LEDZEP]

A car loan is a simple interest loan, amortized over the period specified. The payment will not change. The portion applied to interest vs. principal changes with each payment but the total will always be the same.

I can always calculate my payment beforehand to within a penny, I don't like surprises.

[ejazbmw]

what everone else said

[LEDZEP]

Originally Posted by ejazbmw

what everone else said

What he said.

[chbrules]

I took out a $28k loan from my credit union on a $39k 325i last summer at 6% over 60 months. The interest would come out to be something like $4500, but I payed it off in about 6-7 months and I payed like $1000 in interest or something.

Interest is compounded daily and is recalculated with the current balance as you pay it off. Monthly payment will never change until the loan is payed off or the remaining balance is less than the monthly payment.

[BK]

There probably are some funky car loan options out there where the interest rate fluctuates or you have balloon payments or something, but in general, I agree with everyone above. Auto loans are either simple interest loans or "Rule of 78" loans, where the ratio of interest : principal decreases over time, like a mortgage. In either case, the payments are fixed for the term.

Originally Posted by TMNT

For example: If I where to get a car that cost $30,000 and my monthly payments for the life of the loan was $500 for 60 months.

A $30K loan over 60 months will cost you hella more than $500/mo, but I'll ignore that...

Originally Posted by TMNT

Lets say 6 months from now I send in a check for $5,000. Will the monthly payment amount recalculate and decrease for the remainder of the loan period? Or will the $500 monthly rate stay fixed regardless of how much money you pay off?

They don't recalculate the loan, but the early payments will be applied to future payments. So even if you paid nothing else for the following nine months, you will not be considered in default. Then, on the 10th month, you must make the next $500 payment or be in default.

FWIW, many auto loans are pre-computed and based on the old Rule of 78, so if you plan to pay it off early, it is best to do it really early. In other words, because the amount of interest you pay decreases over time, you might save $150/month by lopping off months from the beginning of the term, versus saving $8/month lopping off months at the end.

[LEDZEP]

Paying down prinicpal on a car loan just isn't worth it, regardless of the interest rate. You'll save a few bucks, but the loan term isn't long enough to make a significant difference. Make extra payments if you want, make a nice cushion or whatever.

If you have a mortgage - pay THAT down... don't worry about the car loan.

[jfulcher]

Originally Posted by BK

There probably are some funky car loan options out there where the interest rate fluctuates or you have balloon payments or something, but in general, I agree with everyone above. Auto loans are either simple interest loans or "Rule of 78" loans, where the ratio of interest : principal decreases over time, like a mortgage. In either case, the payments are fixed for the term.



A $30K loan over 60 months will cost you hella more than $500/mo, but I'll ignore that...



They don't recalculate the loan, but the early payments will be applied to future payments. So even if you paid nothing else for the following nine months, you will not be considered in default. Then, on the 10th month, you must make the next $500 payment or be in default.

FWIW, many auto loans are pre-computed and based on the old Rule of 78, so if you plan to pay it off early, it is best to do it really early. In other words, because the amount of interest you pay decreases over time, you might save $150/month by lopping off months from the beginning of the term, versus saving $8/month lopping off months at the end.

Actually the Rule of 78 is hardly ever used except in sub prime loans (it's illegal in 17 states in fact). Most auto loans are simple interest loans like a mortgage. The rule of 78 loans you pay about 3/4 the interest in the first payments vs over time with a simple interest loan. Just like a mortgage sure you pay more interest early because the interest charged goes down when the principal goes down.

[TMNT]

Thanks guys. I really appreciate the info.

Oh and BK.... I know 30K for 60 months doesn't come close to 500/month. I just wanted to throw out some numbers.

If only I could get a 335i for 30K!

[psychoactive]

Originally Posted by LEDZEP

What he said.

ditto

[msimon18]

All the above is gr8 infro and most is correct and relevant, but if I were you I would get the bank or loan company to explain it all to you. It's what they say that matters in the end !!