Car loan - does this make sense?

A

Audrey

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We borrowed 13,450 eight months ago (car loan) over 60 months at 280 per month (total 16,800). We have found that we can now pay it off. The balance due as of today is 13,002 with 2,240 repayments having been made in the eight month period, hence a total of 15,242 after eight months (not that much short of the total of 16,800 after 60 months). This is apparently because the interest is front-loaded (a bit like a mortgage). We're disappointed. However, there's no use crying over spilt milk. Is it still worth paying off the loan now, rather than letting it run its course of 60 months? Because we've already (alas) paid the majority of the interest up-front, I'm thinking it would make more sense to invest the 13,002 rather than pay it off this loan, as we would presumably earn more interest on this 13,002 in the 52 remaining months than we will be paying to the car loan company.

Loan 13,450
Repayments 280 per month for 60 months = 16,800
That means total interest of 3,350
We've already paid 2,240 of this interest
Therefore, balance of interest due is 1,110
We'd earn more than that by investing the 13,002

Am I right?
 
Why not name and shame the money lender and let everybody else know where not to go for their next car loan.
 
Don't forget to take DIRT into account when estimating the interest you will receive on the money on deposit . Did you take out any form of insurance with the loan.


Murt
 
Something does not add up in your figures if i am not mistaken...
13450 over 5 years at 9% = €280 per month.
After 8 months, you would have paid €768 in interest, €1464 off the principal and the balance should be €11986. Very strange that the balance (13002) is almost equal to amount borrowed (13450) 8 months earlier even with front loaded interest...


Coming back to your question, if you were to invest 13000 at 4% over the remaining 4.25 years, you would get at least twice as much as the interest you owe. So, considering you have already paid most of the interest, then you are right.


Unnecessary comment deleted - Brendan
 
Do you have a car loan or a hire purchase agreement? Most car loans are actually Hire purchase agreements. If you pay it off early the lender will get you to pay the amount you would have paid if you had finished out the agreement, possibly with a little bit of a discount. So if you are on a hire purchase at 8% you may be better to keep paying rather than use your lump sum. One way out is to wait until you have made half of the payments then give the car back, athough you will need to know your way around the consumer credit act and be ready for a fight, the finance companies do not like to see people exercising their rights under this act because the cars are usually worth less than the outstanding balance.
 
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