prepaying on car loan

[nck4857]

We just bought a car and owe $15K at 5.99%/60month loan. We are going to hopefully pay it off in a year and I'm trying to figure out if I should just pay like triple monthly payments or just make minimum monthly payments and send a check in every month or two to have applied to the principle only. Any input? I'm not sure exactly how interest and payments are applied and/or calculated. No prepayment fees on the loan, btw.

Thanks...

[disneysteve]

In the grand scheme of things, I don't think it will matter. You are not talking about a huge loan and you would repay it in a fairly short time. The savings one way or the other would probably be minimal. For simplicity, I'd probably just accelerate payments. If you want to pay a 5-year loan in 1 year, send in 5 times the payment every month. As you get close to the end, call (or go online) and get a payoff amount.

[investingnoob]

I'm in the same boat.
I do minimum payments, and am paying to the principal whenever I can.
The faster you pay it off the better, so if you can afford to pay it off now do it.
The longer you keep it, the more interest you'll owe.

[kork13]

For simplicity, I'd probably just accelerate payments. If you want to pay a 5-year loan in 1 year, send in 5 times the payment every month.

I don't think 5x the payment is quite necessary... I had a $11k, 8.9% car loan, and by just making double-payments, I paid it off in 20 months instead of the 60 that it should have been. Not totally sure how that worked (never did up the amortization table), but by doing triple payments, I'm pretty sure you could have it finished off inside a year. As mentioned, it probably wouldn't make a significant difference between tripling payments vs. sending in principle payments.

[disneysteve]

I don't think 5x the payment is quite necessary

Agreed. That would repay it in less than 1 year. Find an online loan calculator (bankrate.com probably has one) and figure out how much you need to pay to be done in 1 year.

[bones72]

nck, you should check the fine print on the loan papers. Some states allow car loans to have a prepayment penalty that requires you to pay the full sum of the payments. If so, I would not pre-pay until I could get my local bank or credit union to write a loan that would allow you to pre-pay to avoid interest. Missouri is one such state. BTW I am a car dealer.