Will You Save Money If You Make a Car Payment Early Each Month?

Paying your car payment before the due date can save money over the life of the loan.

How great would it be to save money? Paying your car payment earlier than the due date each month can help you save money by reducing the interest you have to pay to your lender.

Function

When you make your car payment, some of your payment will be applied to the interest on the loan, while the remainder will be applied to the principle. Interest is the amount the lender charges for letting you borrow the money, while the principle is the actual amount that was paid on your behalf when you purchased the car.

Effects

Interest begins accuring on your auto loan as soon as money is disbursed for the car your purchased. Depending on the interest rate the lender gives you, it will determine how much you pay back in interest. Since interest will accrue daily on your loan, If you pay your payment five days early, then you will pay 5 days less of interest. The earlier you pay the payment, the more of the payment will go to principle.

Benefits

When you make your automobile payment, interest due comes out of your payment and the remainder is applied to your actual balance. When you pay before your due date, you have fewer days of interest due and more of your payment is applied to your balance, which allows you to payoff your automobile loan early.

References

• The Consumer Bridge: Auto Loan Frequently Asked Questions
• Cars Direct: Calculate Your Auto Loan:The Remaining Principle