Car Loan Question

[OhhWatALoser]

lemme take another shot. When you pay the 362.68, you are making two payments. One payment goes toward the principal, which is what you actually owe on the car. The other payment is interest, which goes directly into the banker's pocket. The loan is designed so you pay more interest in the beginning, so they get as much money as possible. The above formula gives the loan company the magic number for them to make it happen, with a balance of zero at the end.

Every month you pay interest on the principal. First month you pay it on the full 15k, so ($15,000 * 7.5%) / 12 = $93.75, so your first payment will be 93.75 in interest. that is the loan company's profit.

subtract that from what you are paying monthly... $362.68 - $93.75 = $268.93. so that is the amount you actually pay on the principal. so now you only owe $14,731.07 ($15,000 - $268.93 = $14,731.07.)

2nd month you pay interest on the new principal, ($14,731.07 * 7.5%) / 12 = $92.07, subtract from the monthly payment $362.68 - $92.07 = $270.61, so now $270.61 is subtracted from the principal.

If you did this for 48 months, your principal would end up being zero (technically it's probably going to be off by a few pennies). You would pay much less interest per month at the end of the loan. Everything that is confusing about this is because the interest and principal payment change every month, but both add up to the monthly payment.


If you end up paying extra at any given month, that amount is fully taken off the principal, which does two things for you, it reduces the length of the loan and it reduces the interest you pay for every month after that. For example, my car loan is over in june (zero % loan so no point in paying it early), once it is over, I plan on putting the amount of my car loan toward my house loan. the extra money + the extra I already pay per month will turn my 15 year loan into 9 year loan, and cut the interest I pay by many thousands of dollars. If my snake business ever starts booming , I can pay it off even sooner and farther reduce the amount I pay in interest.

it's all just fancy math crap