When taking out a car loan, there are a number of factors that will determine how much interest you will pay on your car loan.
Below are the main factors that will have an effect on how much interest you will pay on your car loan.
The car loan interest rate will be calculated daily on the balance on any given day, and is calculated with the annual percentage rate applied to your car loan contract.
This will mean however long the loan is active for, will determine how much interest you will pay, based off the annual percentage rate applied to your car loan. You can try our car loan calculator to get a good estimate.
The quicker you pay off your car loan, the less interest you will pay, so this would mean the shorter the loan term, the less interest payable and the longer the loan term, the more interest payable.
Paying Out Your Car Loan Early
If you paid your car loan off early, you will actually save on interest payable, which will lessen the amount of interest payable as per your car loan contract.
By paying your car loan off prior to the contracted end date, could result in early termination fees and/or break costs, so it is always a good idea to ask about this prior to entering into any car loan agreement so that you are aware.
If you make additional repayments throughout your car loan contract, this will in effect reduce the contracted loan term, and in effect reduce the amount of interest payable on your car loan.
This will also result in paying your car loan out early and could be subject to early termination costs.
A balloon payment is a larger final repayment on your car loan. This would reduce your normal periodic repayments by having that larger final balloon payment.
By choosing a balloon payment would increase the total amount of interest payable on a car loan, in comparison to the same loan term without any balloon payment. This is due to lowering the principal amount of each repayment, which is the part of your repayment which pays down the balance and is due to the balloon payment being 100% principal outstanding.