May 30, 2016

Additional Car Loan Payment

It is possible to save hundreds if not thousands of dollars over the term of a car loan if you pay a little extra money in addition to your monthly car loan payment. Start paying an additional car loan payment from the moment the first payment is due to take advantage of the savings. This calculation will show the total amount saved from the initial payment and does not take into consideration additional payments in the middle of car loan repayment.

The calculation requires three variables: monthly interest, auto loan amount, and monthly payment. The monthly interest is expressed as a decimal divided by 12; for example, an annual interest rate of 3.11% would be expressed as 0.0311 ÷ 12, or 0.002591667. The auto loan payment consists of the required monthly payment plus the additional car loan payment.

If a borrower is given a $25,000 car loan, with a 3.11% annual interest rate and monthly car loan payment of $450.44, how many months could they save by paying an additional $104.14?

#, months = −log(1−iA/P) / log(1+i)

Original Number of Months

60.00 months = −log (1−((0.0311÷12)×25000)÷450.44)÷log (1+(0.0311÷12))

Adjusted Number of Months

47.99 months = −log (1−((0.0311÷12)×25000)÷554.58)÷log (1+(0.0311÷12))

Additional Car Loan Payment Calculator

Additional Car Loan Payment Calculator
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Paying an additional $104.14 toward this car loan will save the borrower a year’s worth of car loan payments. Paying off principal quicker reduces money applied toward interest and improves the borrower’s credit-to-debt ratio. A lower credit-to-debt ratio will improve the borrower’s overall credit score, allowing for better loan terms for the borrower in the future. The money saved over the final year of the car loan could be placed into a savings account where it can earn compound interest.