Paying off your auto loan early can be a smart financial move, saving you money on interest and freeing up cash flow sooner. This calculator helps you visualize the impact of making additional payments on your loan's term and the total interest you'll pay.
How Auto Loans Work
An auto loan is a secured loan used to finance the purchase of a vehicle. Each monthly payment typically consists of two parts: principal and interest. The principal is the amount borrowed, and the interest is the cost of borrowing that money. Most auto loans use an amortization schedule, meaning your early payments are weighted more towards interest, and later payments are weighted more towards principal.
The Math Behind Early Payoff
When you make extra payments on your auto loan, they are usually applied directly to the principal balance. Reducing the principal faster has a compounding effect:
Less Interest Accrued: A smaller principal balance means less interest accrues over time.
Shorter Loan Term: By reducing the principal faster, you reach the end of your loan term much sooner.
Original Loan Calculation
The monthly payment (M) for a loan can be calculated using the loan amortization formula:
n = Total number of payments (Loan Term in Months)
Early Payoff Calculation
When you add an extra payment, the total payment (P + Extra) is applied to the loan. The calculator simulates month-by-month payments, reducing the principal by the total amount paid each month (including the extra payment), and recalculating the interest on the new, lower balance. This process continues until the balance reaches zero.
The calculator determines:
Original Payoff Time: The number of months it would take to pay off the loan at the original payment amount.
New Payoff Time: The number of months it takes to pay off the loan when making the original payment plus your additional payment.
Time Saved: The difference between the original and new payoff times.
Total Interest Saved: The difference between the total amount paid on the original loan schedule versus the total amount paid with the extra payments.
When is it a Good Idea to Pay Off Your Auto Loan Early?
High Interest Rate: If your auto loan has a high interest rate (e.g., above 6-7%), the interest savings can be significant.
Financial Stability: Once you have a solid emergency fund and are on track with other financial goals (like retirement savings), extra debt payments become more attractive.
Psychological Benefit: Being debt-free sooner can provide significant peace of mind.
Important Considerations
Prepayment Penalties: Check your loan agreement for any prepayment penalties. Most auto loans do not have them, but it's crucial to verify.
Opportunity Cost: Consider if the money could be better used elsewhere, such as investing in assets with potentially higher returns, especially if your loan interest rate is very low.
Loan Servicer Application: Ensure your extra payments are being applied to the principal and not simply being credited as an advance on future payments. Always confirm with your loan servicer.
function calculateEarlyPayoff() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var remainingMonths = parseInt(document.getElementById("remainingMonths").value);
var extraPayment = parseFloat(document.getElementById("extraPayment").value);
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid current loan balance.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate.");
return;
}
if (isNaN(remainingMonths) || remainingMonths 0) {
originalMonthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, remainingMonths)) / (Math.pow(1 + monthlyInterestRate, remainingMonths) – 1);
} else {
originalMonthlyPayment = loanAmount / remainingMonths;
}
originalMonthlyPayment = Math.max(originalMonthlyPayment, 0); // Ensure non-negative
var totalOriginalInterest = 0;
var tempLoanAmount = loanAmount;
var tempMonths = remainingMonths;
var tempMonthlyInterestRate = monthlyInterestRate;
for (var i = 0; i < remainingMonths; i++) {
var interestThisMonth = tempLoanAmount * tempMonthlyInterestRate;
totalOriginalInterest += interestThisMonth;
tempLoanAmount -= (originalMonthlyPayment – interestThisMonth);
if (tempLoanAmount 0) {
var interestThisMonth = currentLoanBalance * monthlyInterestRate;
var principalPaidThisMonth = (originalMonthlyPayment + calculatedExtraPayment) – interestThisMonth;
// Handle the last payment which might be smaller
if (principalPaidThisMonth > currentLoanBalance) {
principalPaidThisMonth = currentLoanBalance;
var lastPayment = interestThisMonth + principalPaidThisMonth;
totalPaidWithExtra += lastPayment;
totalInterestWithExtra += interestThisMonth;
currentLoanBalance = 0;
} else {
totalPaidWithExtra += (originalMonthlyPayment + calculatedExtraPayment);
currentLoanBalance -= principalPaidThisMonth;
totalInterestWithExtra += interestThisMonth;
}
newMonths++;
if (newMonths > remainingMonths * 2 && remainingMonths > 0) { // Safety break to prevent infinite loops
alert("Calculation seems to be taking too long. Please check your inputs.");
return;
}
}
var interestSaved = totalOriginalInterest – totalInterestWithExtra;
var monthsSaved = remainingMonths – newMonths;
document.getElementById("originalMonths").innerText = remainingMonths.toLocaleString();
document.getElementById("newMonths").innerText = newMonths.toLocaleString();
document.getElementById("monthsSaved").innerText = monthsSaved.toLocaleString();
document.getElementById("interestSaved").innerText = "$" + interestSaved.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
document.getElementById("totalPaid").innerText = "$" + totalPaidWithExtra.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
// Display original monthly payment for context (optional but helpful)
// document.getElementById("originalMonthlyPayment").innerText = "$" + originalMonthlyPayment.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
}