Quote:
Originally Posted by ember1205
When you pay early, that [usually] does reduce your total amount of interest paid because the amount paid to principle reduces the principle amount earlier in the cycle. However, the way that some banks amortize your loan, what ultimately matters is the principle balance on a specific day of the month as opposed to compounding interest daily.
In your example, you are assuming that the extra $50 is paid toward principle. From your previous post, some lenders do not do this automatically and apply the money directly toward your "next payment" amount. Unless that money is directly credited to the principle amount, it very well may NOT reduce your overall interest liability as it will not slow down the rate of compounding.
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The note on my 5th gen was with Wells Fargo. For the first few years they did the reduce your next payment thing. Which I still made the full payment plus 50. Then they switched it to applying to principal. Either way I was still on pace to pay off a year early.
All auto loans are no prepay penalty as far as I know. They are amoratized, so you pay more interest up front. They use a per diem, interest per day, which reduces as your loan matures.