I've not been able to find the answer to this question. I am looking specifically for the law as it applies only to the state of Arizona.

If I take a loan for a car purchase, can I be penalized for paying it off sooner than the term of the contract?

State laws vary on the matter, and I was unable to determine anything further than, "These penalties are allowed in 36 states, although they are prohibited around the U.S. for loans longer than 61 months." (carsdirect.com) I don't even see a list of the alleged 36 states.

Background - I intend to buy a car and the dealer wants me to get a loan for it so they can profit off the interest each month. I prefer to pay the full cost all at once. Knowing they won't sell me the car on that condition (because it reduces their possible revenue on the sale), I likely will have to take a loan. I would like to make 1-2 payments, then pay it all off. But not if there's a prepayment penalty. Which is why I am asking if Arizona law prohibits penalties for pre-payment of a loan.

  • 4
    Are you sure they won't sell you the car for cash? If they won't, walk down the street to one that will. I can't fathom a dealer will turn down cash business and wouldn't want to deal with one that's clearly deranged.
    – quid
    Jun 25, 2018 at 21:51
  • You need to, Need To, NEED TO read the loan contract before signing. Don't take the chance that they found a loophole in the state law.
    – Ben Voigt
    Jun 25, 2018 at 22:01
  • 2
    I can't agree with quid more. If you have cash, you have incredible walk-away power. They might get a kickback for financing the car, but they'd be stupid to turn down a cash offer. Find another dealer.
    – D Stanley
    Jun 26, 2018 at 3:35
  • 1
    The real moral of this story is: agree to a price for the car before talking anything about method of payment. A lot of places like to talk payments first, because they try to target a certain monthly payment, and yes, the bankers do offer incentives to take out loans with their companies. If the salesman asks about that, just tell them you want to concentrate on agreeing to a price first. And if they can't or won't do that, then as above, leave. Some other business will be happy to do that for you. Jun 26, 2018 at 18:37
  • 1
    @R.Hamilton That's good advice. Getting them to commit to a final price (including all their fees) in advance tilts the board in the buyer's favor. I like that. Jun 28, 2018 at 17:21

1 Answer 1


Arizona is a non prepayment penalty state!!! The dealers want three payments so they dont get charged back! It has nothing that do with the buyer! State law!

  • You also would likely pay 1000 more if you pay cash. AZ does internet pricing that includes a 1000 finance discount—been in the business 20 years. It’s not rocket science. So pay your addtl $ or finance make three payments not to screw your dealer and then pay it off! Once again AZ is a no prepayment penalty state.
    – Acuna
    Aug 25, 2018 at 3:51
  • Thanks for confirming Arizona doesn't have pre-payment penalties. As it turned out, I ended up buying it with cash. By the way, the internet $1,000 "discount" can still be had by telling the dealer, "I saw the price online." Which is what I did, and the online price was honored. That may be unknown to someone who walks in off the street and never sees the online price. So if you see a car at a dealership, look at the dealer's website to see if it's listed there for less money. I hope this helps someone else who is reading this. Aug 29, 2018 at 22:49

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