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Say I bought a car for $20,000 and made a down payment of $5,000

Now, at 0.99% APR, I need to pay around $450/month for 36months to pay off my $15,000 debt.

Now, which is a wiser option:

  1. I make $1,000 payments every month so that I will payoff my loan in nearly 18months. (half the actual time)
  2. Make a full payment of 15,000 in 1month
  3. Keep paying $450/month

Is there any saving in any of the three options for me? Especially, in option 1 and 2, will I be paying less interest since I will pay off my load before the actual time?

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  • Option 2 is a little confusing. Are you saying you have the full 15,000 to pay off the debt? or do you mean pay nothing till you can pay 15,000?
    – Kirill Fuchs
    Commented Jul 11, 2012 at 9:56
  • yes, I mean make the full payment of the debt in one go.
    – zengr
    Commented Jul 11, 2012 at 17:39
  • If you have the $15k to pay it off in the first month, why bother with a loan?
    – JohnFx ♦
    Commented Apr 4, 2016 at 3:52
  • Because the interest is low. I can invest that money somewhere else and make more money.
    – zengr
    Commented Apr 4, 2016 at 16:54

2 Answers 2

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This depends on what the alternative is. Your loan of .99% is very favorable rate. If you have the 15,000 right now but only hold it in your checking account or cash then you might as well just pay it all off(assuming you have an adequate emergency fund).

Paying the debt off sooner will save you on interest. Currently if you pay the minimum you will pay a total of $15,230 by the end of the loan, a $230 premium to $15,000. - Math credit goes to Joe

If you have an investment vehicle you feel can successfully yield more then .99%, you might want to consider investing that money instead, while paying the minimum on your car loan.

Also be sure to check the .99% is not an introductory rate which increases later on.

It comes down to whether you can get a better return then .99% investing that money or whether you rather just pay off the debt and not worry about it. If you don't want to bother investing the money, than just pay it off...

I also assumed you have no other revolving debt with a higher APR. If you do, first pay off the higher APR debt.

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  • Yeah, I got a good deal which is .99% APR for the whole term.
    – zengr
    Commented Jul 11, 2012 at 17:39
  • 36 mo to pay off at .99% results in payments totaling $15230. Just a tad higher than my envelop calculation of $15225, but far less than The $450 you suggest. The balance declines as paid over time, the full $15,000 doesn't accrue interest the whole time.
    – JTP - Apologise to Monica ♦
    Commented Jul 11, 2012 at 19:26
  • Just reversed my Downvote. Sorry, I am a stickler for numbers. Now +1.
    – JTP - Apologise to Monica ♦
    Commented Jul 11, 2012 at 19:34
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You can earn significantly more than 0.99% in the stock market. I'd pay the $450/month and invest the rest in a (relatively conservative) stock market fund, making monthly withdrawals for the car note.

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