If I get a $13000 car loan and have 3% interest and a 60 month term but pay double each month is that the same as getting a 30 month term?
It's perhaps a bit obvious, but with the shorter term loan you would be contractually obligated to pay the higher monthly payment. By paying double on the longer loan, you retain the flexibility to pay less.
And you would pay less interest if you truly doubled your payment on the longer loan. This is because you'd be paying off more of the principal more quickly. (But you'd also be making a slightly higher payment than on the shorter term loan.) You can play with the amortization calculator at Bankrate to understand this.
Yes, by paying double the amount each month you would have in effect paid the loan off in less than half the time.
For $13000 at 3% over 60 months your monthly repayments would be $233.59.
If you double your monthly repayments to $467.18 you would end up paying the loan off by the end of the 29th months, more than halving your loan term, as long as there are no penalties for paying the loan off early.
As usual it depends, but fundamentally, an interest rate is just a function of a party's creditworthiness and the length of time the money is being lent out for.
- When a bank loans you money, they forego other opportunities to loan that money to someone else.
- When you reduce the terms of that loan, they don't forgo as many opportunities as they receive the principal back sooner.
- Additionally, their risk profile on the loan is reduced as they have a better understanding of the overall financial market over the next 30 months versus the next 60 months.
- So they can afford to offer you a better rate to compete with other lenders.
So, no, if your credit entitles you to a 3% APR on a 60 month term, then it should entitle you to a better interest rate over a 30 month term. Perhaps not double, but better.
Approximately Yes. However as you are paying more, the interest accrused would be less.
- So for $13000 at 3% over 60 months monthly repayments would be $233.59
- At Double payments, $233.59*2 = $467.18 the tenor would be Aprox 28.5 months, less than half
- For $13000 at 3% over 30 months monthly repayments would be $450.32