What if you paid an extra $100 a month, starting after the first year? The calculator says you’d save $228 in interest and pay the loan off six months early.
Now suppose you came into a windfall and made a single $10,000 payment after two years, when the loan balance was down to only $10,500? You’d save $511 in interest and be free of payments in another two months.
These days it’s pretty hard to find a guaranteed fixed-income investment that pays 5%. The average 48-month certificate of deposit yields only 1.4%, according to the survey. On the other hand, the savings from extra payments on short-term car loans are not exactly jaw-dropping. Certainly, it would not make sense to put an extra $10,000 into your car loan if you didn’t have a rainy-day fund big enough to cover six to 12 months of living expenses.
Also, many car dealers and credit unions are beating the average loan rates cited by the survey. The search tool shows some lenders offering loans at less than 3%, and some manufacturers are offering even better deals.
Just be sure a super low rate is not an alternative to some other incentive, like cash back, that might be more valuable. Weigh the alternatives with the Auto Rebate vs. Low Interest Financing Calculator.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.