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"Do I pay any future interest if I pay off my car loan early? "
I've heard often enough that paying off a car loan early means paying less interest. But what about any future interest that would have been owed down the line?
Johnny Puckett · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“If you pay off your car loan early, how much interest you end up paying depends on the terms of your loan. If your loan does not have a prepayment penalty and is not a precomputed interest loan, then you could end up paying less in interest by paying your loan off early. Otherwise, the interest amount is pretty much set regardless of when you pay off the loan.
With a precomputed loan, the precomputed interest is determined upfront based on how much you’re borrowing, and this amount is added to your principal to get your account balance. Your payments aren’t allocated separately to your principal and interest; instead, your payments simply reduce your account balance until you hit zero.
“
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- Gregory R.
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