"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?

“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. “
Johnny Puckett
Answered on Apr 05, 2021
Johnny Puckett is a freelance writer and automotive expert. He has contributed content to a number of some of the largest online publications, aftermarket automotive manufacturers’ sites, and automotive informational sites. His experience in the automotive and information fields informs his writing at Jerry. His automotive interests bleed into his free time, where he enjoys modifying his favorite cars and woodworking.

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