Personal Finance

Is it worth it to pay off car loan early? (Nissan Finance)

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[OP]
Newbie
Sep 23, 2017
81 posts
37 upvotes

Is it worth it to pay off car loan early? (Nissan Finance)

Hello,

Question for people that had similar experience or understand how auto financing works.
I'm debating if I should pay off my car loan early. We still have ~81 bi-weekly payments left and I wanted to get rid of this $304.25 payment, this will really help my family in near future as we try to minimize our monthly expenses. I logged on to Nissan Finance account and got a payout quote of $24,388.43 (includes all interest). I always thought that paying off early will save you interest in the long run, but it looks like all of the interest was just added as lump sum.
Not sure if I'm getting any benefits from this payout besides getting rid of the monthly payment.
What happens if I just pay a portion of the balance, does it reduce my monthly payments or shortens the term of the loan?

Thank you for your help.
Cheers
40 replies
Deal Expert
Mar 25, 2005
21495 posts
2296 upvotes
fabricatordog wrote: Hello,

Question for people that had similar experience or understand how auto financing works.
I'm debating if I should pay off my car loan early. We still have ~81 bi-weekly payments left and I wanted to get rid of this $304.25 payment, this will really help my family in near future as we try to minimize our monthly expenses. I logged on to Nissan Finance account and got a payout quote of $24,388.43 (includes all interest). I always thought that paying off early will save you interest in the long run, but it looks like all of the interest was just added as lump sum.
Not sure if I'm getting any benefits from this payout besides getting rid of the monthly payment.
What happens if I just pay a portion of the balance, does it reduce my monthly payments or shortens the term of the loan?

Thank you for your help.
Cheers
What are the terms of the loan?
Deal Addict
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Mar 10, 2018
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centre of universe
Yes. Simple.

paying off any loan early is better imo. But people might disagree. The difference I see is earlier the better as you are paying more for interest in early stages.
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Sr. Member
Jul 21, 2009
954 posts
382 upvotes
Toronto
fabricatordog wrote: Hello,

Question for people that had similar experience or understand how auto financing works.
I'm debating if I should pay off my car loan early. We still have ~81 bi-weekly payments left and I wanted to get rid of this $304.25 payment, this will really help my family in near future as we try to minimize our monthly expenses. I logged on to Nissan Finance account and got a payout quote of $24,388.43 (includes all interest). I always thought that paying off early will save you interest in the long run, but it looks like all of the interest was just added as lump sum.
Not sure if I'm getting any benefits from this payout besides getting rid of the monthly payment.
What happens if I just pay a portion of the balance, does it reduce my monthly payments or shortens the term of the loan?

Thank you for your help.
Cheers
There should be a breakdown of how much interest you are paying both in total and on each payment. If you got a good interest rate and believe you can use your money to make more than the interest owed on this car then keep the loan, else pay it off.

Unless you suddenly came into a bunch of cash these are decisions you should have made before accepting the finance offer.
Deal Fanatic
Apr 16, 2007
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Financial District B…
All auto loan structures are calculated using the Simple Interest formula. (except some subprime institutions)

The payout you received is the total owing as of the date you got it. That payout will be different in a weeks time from now because addition interest ahas been added.
So yes paying your auto loan off early does indeed save you interest versus taking the loan to full term. (subject to the auto loan contract is not zero percent interest)
Call them back and ask them what the per diem is. That should answer it for you
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Deal Addict
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Jun 23, 2017
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fabricatordog wrote: Hello,

Question for people that had similar experience or understand how auto financing works.
I'm debating if I should pay off my car loan early. We still have ~81 bi-weekly payments left and I wanted to get rid of this $304.25 payment, this will really help my family in near future as we try to minimize our monthly expenses. I logged on to Nissan Finance account and got a payout quote of $24,388.43 (includes all interest). I always thought that paying off early will save you interest in the long run, but it looks like all of the interest was just added as lump sum.
Not sure if I'm getting any benefits from this payout besides getting rid of the monthly payment.
What happens if I just pay a portion of the balance, does it reduce my monthly payments or shortens the term of the loan?

Thank you for your help.
Cheers
consider it akin to breaking a mortgage. the lender expected to profit an amount paid by you called 'interest'.
they want that interst money and they want is pretty much evenly over a period of time .. 60 months? 72 months... etc that's the deal.

Eg.
Say the car costs $72,000 and you simply agree to pay the lender over 72 months, $1,000 per month for the car PLUS $100 interest per month ... over 72 months you'll pay $72,000 for the car and $7,200 in interest, $79,200 total.

if you drive the car off the lot and decide a week into the loan financing before your first payment you want to pay it all off because you won the lottery, your lender may say "GREAT! .. pay me the $79,200 and we're all settled"

Don't expect to just pay the $72,000 Smiling Face With Open Mouth

This is an extreme case, but the point is there will be a PENALTY / FEE / SURCHARGE to break your contract. Maybe the penalty is only 3 months interest, which in the example is only $300. Read your contract and do the math.
[OP]
Newbie
Sep 23, 2017
81 posts
37 upvotes
Thank you for your answers, I remember interest was something like $27 per biweekly payment. So basically multiplying payment by remaining # of payments comes up to payout, which does include interest :s

The payoff I'm getting is automatically generated of their website. I guess I have to try and get through to them on the phone before just paying this lump sum.
[OP]
Newbie
Sep 23, 2017
81 posts
37 upvotes
905P4N6 wrote: consider it akin to breaking a mortgage. the lender expected to profit an amount paid by you called 'interest'.
they want that interst money and they want is pretty much evenly over a period of time .. 60 months? 72 months... etc that's the deal.

Eg.
Say the car costs $72,000 and you simply agree to pay the lender over 72 months, $1,000 per month for the car PLUS $100 interest per month ... over 72 months you'll pay $72,000 for the car and $7,200 in interest, $79,200 total.

if you drive the car off the lot and decide a week into the loan financing before your first payment you want to pay it all off because you won the lottery, your lender may say "GREAT! .. pay me the $79,200 and we're all settled"

Don't expect to just pay the $72,000 Smiling Face With Open Mouth

This is an extreme case, but the point is there will be a PENALTY / FEE / SURCHARGE to break your contract. Maybe the penalty is only 3 months interest, which in the example is only $300. Read your contract and do the math.


Yeah I think they just added this whole interest amount to total sold price of the car, this way they guarantee themselves income.
Jr. Member
Oct 11, 2013
155 posts
34 upvotes
Almost American
1) It's not legal for them to apply the interest up front for this type of loan (they can for 'cash advance' style). The interest needs to be on the balance owing, or they need to credit you if you paid it off early. It's probably a system thing. You may have to pay fees for terminating the contact early, which is legal.
2) It's probably not in your best interest to pay this off early because
a) The interest rate is quite low, although most car manufacturers have given 0% for the past few years
b) Paying lump sums on an instalment loan, if you have any other revolving credit is unlikely going to help your credit score. Very very few people pay off instalment loans early.
Deal Expert
Aug 22, 2011
32739 posts
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Ottawa
Total cost of borrowing is included in your OTR price, regardless if paid off right away or not.
Deal Addict
Jan 30, 2012
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TORONTO
callernamet wrote: paying off any loan early is better imo.
It depends on the interest rate.

If the interest rate on the loan is very low and you can do something else more valuable with your money then paying it off early has no value.
905P4N6 wrote: consider it akin to breaking a mortgage. the lender expected to profit an amount paid by you called 'interest'.
Nope. Typically car loans are open loans where you can pay it off early at anytime without penalty.

By comparison, mortgages don't let you pay it off early (or they let you make small additional early payments). So if you really want to pay it off early there is a penalty.
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Mar 9, 2012
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Kitchener
Since your rate is already low, I'd just continue to make payments and save your cash for a rainy day.

My second thought to this is: you pay it off now, then what is stopping you from getting another car loan?
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[OP]
Newbie
Sep 23, 2017
81 posts
37 upvotes
jeff1970 wrote: Since your rate is already low, I'd just continue to make payments and save your cash for a rainy day.

My second thought to this is: you pay it off now, then what is stopping you from getting another car loan?
That's true it is so tempting to go and pick up new car off the lot for a low payment of $600.00. At the same time it's tempting to be debt free, this is our last loan, besides mortgage, and I can still drive this car for another 4 - 6 years or as long as it stays reliable.
I'm self employed so freeing up $600 a month is couple of days less to work and spend with my family.
Deal Expert
Mar 25, 2005
21495 posts
2296 upvotes
905P4N6 wrote: consider it akin to breaking a mortgage. the lender expected to profit an amount paid by you called 'interest'.
they want that interst money and they want is pretty much evenly over a period of time .. 60 months? 72 months... etc that's the deal.

Eg.
Say the car costs $72,000 and you simply agree to pay the lender over 72 months, $1,000 per month for the car PLUS $100 interest per month ... over 72 months you'll pay $72,000 for the car and $7,200 in interest, $79,200 total.

if you drive the car off the lot and decide a week into the loan financing before your first payment you want to pay it all off because you won the lottery, your lender may say "GREAT! .. pay me the $79,200 and we're all settled"

Don't expect to just pay the $72,000 Smiling Face With Open Mouth

This is an extreme case, but the point is there will be a PENALTY / FEE / SURCHARGE to break your contract. Maybe the penalty is only 3 months interest, which in the example is only $300. Read your contract and do the math.
For a captive auto loan in Canada this is untrue. Loans are open and can be paid at any point during the term, with interest accrued to date paid to the lender on the final payment.

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