Peter McDougall
Everyone knows paying off mortgage prinicpal can net you tens of thousands of dollars in interest payments -- but what about car loans? With the help of the online Auto Loan Payoff Calculator from BankingMyWay.com, you can now figure that out.
The calculator provides an amortization schedule based on details such as loan amount, interest rate, duration and time remaining. It then calculates a second schedule based on additional monthly payments. The calculator compares the two, giving you the estimated savings. Let's say you take out a 60-month, $18,000 loan at 6.77%, the recent national average for auto loans, according to rates published by BankingMyWay.com. If you get a raise after a year, you might consider making additional $50 monthly payments for the remaining 48 months. According to the calculator, doing so means you'd save $304 in interest payments by the time your loan is paid off. That $304 is your return on a $50 per month investment over four years. That sounds good -- but what if you had invested that money instead? The national average rate for money market accounts is just 0.87%. At that rate, investing $50 a month for four years would net you a meager $43. In order to benefit from investing rather than prepaying your loan, you'd have to find an investment account that offered rates of return higher than the 6.77% of your car loan. What's more, if your investment account is taxable, rather than a tax-deferred account such as a 401(k) plan or IRA, you'd have to achieve a return of 9.67% in order for investing to be a better move than prepaying the loan. In this case, then, paying off the car loan early is the better move.
RSS
