Timeline for Can I take out a loan and pay it back immediately to avoid interest?

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8 events

when toggle format	what		by	license	comment
Sep 12, 2021 at 20:32	comment	added	Mark Ransom		@RossMillikan yes the rule of 78s sounds familiar - this was back in 1985 so it's getting hard to remember.
Sep 12, 2021 at 15:30	comment	added	Ross Millikan		@MarkRansom: in years past (I don't know about today) car loans used the "rule of 78s" for calculating how much of a payment went to principal. It comes because 78 is the sum of the numbers 1 to 12. I forget the rule, but it was disadvantageous to the borrower to pay off early in that not much interest was saved.
Sep 12, 2021 at 3:06	comment	added	Mark Ransom		@Graham my first car loan didn't have penalties, but it had a rather unique way of calculating the interest owed. If you kept the loan to full term you paid the stated rate in total, but if you paid it off early much of the interest was front-loaded. I figured this out after only a couple of months and thankfully the penalty wasn't too bad yet - if I'd had it for a year it would be a different story.
Sep 10, 2021 at 20:53	comment	added	minnmass		The terms might also specify that the payment needs to explicitly apply to principle, rather than defaulting to pre-paying the next X months' payments (during which time the normal interest may accrue).
Sep 10, 2021 at 13:21	vote	accept	Runeaway3
Sep 10, 2021 at 11:08	comment	added	Graham		Simple answer, but correct. Lenders can put any conditions they like on a contract (within local law) and only the contract will tell you whether you can or can't. I'm not aware of anywhere which actually stops you repaying, but penalty charges often apply.
Sep 9, 2021 at 19:39	comment	added	Ben Barden		...and others have potentially significant service fees that have more or less the same effect.
Sep 9, 2021 at 19:39	history	answered	Eric	CC BY-SA 4.0