How To Use An Auto Loan Payoff Calculator | VAL Blog

How to Use an Auto Loan Early Payoff Calculator

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An auto loan early payoff calculator is a powerful tool that you can use to review your current auto loan and find out how much you might save if you pay it off early. While these calculators are easy to use, there are a few things you should keep in mind while analyzing their results. There are also serious credit implications to consider before you pay off any debt early.

Benefits of Utilizing Early Payoff Calculators

An auto loan early payoff calculator is a simple tool that you can use to find out how much more you would have to pay in order to settle your auto loan by a specified date. Even paying a paltry $20 a month extra on your loan can help you curtail high interest rates. If you have more than that to apply to your loan each month, you may find that you can pay off your loan significantly early. Using an early payoff calculator will save you time and help you come up with a more accurate estimate of your pay-off date. When doing this type of calculation manually, it’s easy to forget to account for APR or the initial repayment terms.

Usage

Most early payoff calculators consist of five boxes, the first of which is typically reserved for the original loan balance amount. You should place the entire loan amount into this box, sans any projected interest. The next box down is often for the annual percentage rate, or APR box. This is the percentage rate your dealer’s financing department gave you when you purchased the car. A typical APR rate is between 3 and 5%, although this figure varies according to many factors. If you’ve refinanced, your rate is likely higher.

The next box in the calculator is often labelled “initial term in months.” This is simply the number of months in which you agreed to pay your loan back. A typical auto loan term is around 48 months. Next, you’ll need to specify the number of payments you’ve already made on your loan. The final box in the calculator is often reserved for the additional amount in dollars that you plan to pay on your loan each month. Once you’ve supplied all of these numbers, the calculator will let you know how much in interest you’ll save and how quickly you’ll own the car compared to your original loan plan. Note that individual calculators may place these boxes in a different order. However, they will always be clearly labelled.

Credit Considerations and Fines

Clearly, the more you can pay each month in principal, the less you’ll pay in interest. However, banks aren’t crazy about this idea. When you signed up for financing, you agreed to pay your loan over the specified time frame. It’s important that you check with your financier to see if they charge a fee for terminating the loan early. If they do, compare the fee with the calculator’s prediction of how much you’ll save on interest. If the two numbers aren’t far off, you may want to put your extra money toward another use. Although having one less account on your credit is a great thing, paying on that account on time month after month has a positive effect as well.

Keep in mind that your credit rating is not a “good consumer behavior” score. Lenders are more concerned with your overall ability and inclination to pay off a debt over the long-term than they are with your ability to pay off a debt in full. Fortunes are made and lost in the blink of an eye. To a bank, whether they’re lending thousands or millions, the most important consideration is whether or not the loan recipient has demonstrated regular monthly payments in the past. Keep this in mind when you evaluate your current debt load. If you’ve received a sudden windfall but know you’re likely to rely on credit in the future, it may be a better idea of to invest this money elsewhere than pay off your loan early.

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