Prepayment penalties

steve346steve346 Member Posts: 3
edited February 13 in General
Are there any banks that do not charge a prepayment penalty on their auto loan?

Answers

  • MichaellMichaell ColoradoModerator Posts: 192,888
    I think most all of them.

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  • pensfan83pensfan83 PennsylvaniaMember Posts: 2,199
    I'm not aware of any either. I work for a large financial institution and we do not charge one.
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  • qbrozenqbrozen Member Posts: 29,659
    Yup. I agree with the above. I’ve never seen one that did have it.

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  • oldfarmer50oldfarmer50 Member Posts: 18,659
    I think prepayment penalties are the exception rather than the rule but from my experience you don’t save as much as you might think by paying off early. I paid a 60 mo loan off 7 months early and only saved $42 in interest.

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  • xwesxxwesx Fairbanks, AlaskaMember Posts: 15,153
    edited February 13

    I think prepayment penalties are the exception rather than the rule but from my experience you don’t save as much as you might think by paying off early. I paid a 60 mo loan off 7 months early and only saved $42 in interest.

    I agree about the penalties being the exception. I haven't seen such a thing at any financier I've used.

    As far as interest savings, it really depends on how you approach it. Paying the loan off early, as in "I'm impatient to get rid of this thing, and I only have $3,000 left, so I'm just going to pay it off now," doesn't result in nearly as much savings as taking a long-view early payoff approach because you've already paid most of the accumulated interest charges on schedule.

    If you have, say, a $25,000 loan at 3.99% APR over 60 months, your final bill at the end of the loan will be about $2,600 in interest if you pay on schedule ($460 / mo). Alternatively, if you pay $500 per month from the start, in monthly payments, you will pay it off in 55 months with about $2,400 in interest. So, this costs you a scant $40 more per month and results in more than $200 savings. Swapping that to bi-monthly payments of $250 saves another $50 or so and still keeps the payoff at 55 months. Better still, if you get paid bi-weekly, then set up the payments bi-weekly at $250 per and you'll pay it off ten months early with a savings of around $450.

    Not huge numbers, but the final one is about a 17% savings versus the base payment schedule, and all you're really doing is modifying the psychology of the payments. If the loan was $60,000, 17% savings is nearly $1,100. And, the longer the term, the greater the savings (e.g., home mortgages).

    @steve346 - If you're looking at a loan that includes pre-payment penalties in the fine print, find another place to do business. I think that any of the national lenders will not have pre-payment penalties, and most (reputable) local institutions will not either.
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  • kyfdxkyfdx Moderator Posts: 197,431
    The last time I saw it was on a loan from 1977. When I paid it off early, they used the "Rule of 78s" to calculate the balance, and it cost me an extra $200.

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