Comments on: Is your car loan more expensive than you think? The difference between APR and the total interest you have to pay http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/ Articles on game theory and personal finance Thu, 09 Feb 2012 18:20:00 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: The Money Book for the Young, Fabulous and Broke - Mind Your Decisions http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/comment-page-1/#comment-9559 The Money Book for the Young, Fabulous and Broke - Mind Your Decisions Sun, 21 Aug 2011 00:04:55 +0000 http://mindyourdecisions.com/blog/?p=785#comment-9559 [...] would prefer a comprehensive approach. For instance, I would explain the basics of car loans and then suggest an online calculator to do the calculations. But that’s just my [...] [...] would prefer a comprehensive approach. For instance, I would explain the basics of car loans and then suggest an online calculator to do the calculations. But that’s just my [...]

]]> By: Kevin M. http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/comment-page-1/#comment-6621 Kevin M. Tue, 25 May 2010 00:14:43 +0000 http://mindyourdecisions.com/blog/?p=785#comment-6621 I feel I'm being WAXED! Initially my car loan was for something like 287.45 for like 60 months.I followed the rules and noticed the finance charges fluctuating with each payment. I asked and began having my payment go directly to the principal balance. Each month for the past 6 months my payments have made a dent. I went to another branch to make my same payment and then received a letter a few days informing me my balance would be rolled back to above the 10,000.00 mark. Is that ethical or fair? What can I do? I feel I’m being WAXED! Initially my car loan was for something like 287.45 for like 60 months.I followed the rules and noticed the finance charges fluctuating with each payment. I asked and began having my payment go directly to the principal balance. Each month for the past 6 months my payments have made a dent. I went to another branch to make my same payment and then received a letter a few days informing me my balance would be rolled back to above the 10,000.00 mark. Is that ethical or fair? What can I do?

]]> By: Larry Ellis http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/comment-page-1/#comment-5726 Larry Ellis Sat, 24 Oct 2009 02:34:55 +0000 http://mindyourdecisions.com/blog/?p=785#comment-5726 Interest post. But there are several problems. 1. What you refer to here as "add-on" interest is not. It is simply the finance charge. Add-on interest generally starts with a particular interest rate (say an annual rate of 5.69%), and a term (say 5 years). Then, the total amount of the add-on interest over the term is calculated, added to the principal, and divided equally by the number of payments. So at an add-on interest rate of 5.69%, we have the following math for the $18,500 loan: 18,500 x 5.69% x 5 = $5,263.25 interest. (18,500 + 5,263.25) / 60 = $396.05 monthly. I won't go into the math, but the APR on this 5.69% add-on loan is 10.33%. See http://www.math.hawaii.edu/~hile/math100/consb.htm 2. Contrary to both your article and the calculator you reference (http://www.freeonlinecalculator.net/calculators/loan/auto-simple.php), the APR on a 60-month loan of 18,500 with a finance charge of $2,726.20 is 5.547%, not 5.69%. 5.69% is the APY for the same loan, although I've never seen a loan quoted using an APY. Check my result using any financial calculator or the numerous online calculors: PV: 18500 Term: 5 years Rate: 5.547% yields a monthly payment of $353.77, and the finance charge of $2,726.20: $353.77 x 60 = $21,226.20, $21,226.20 - 18,500 = $2,726.20 Interest post. But there are several problems.

1. What you refer to here as “add-on” interest is not. It is simply the finance charge. Add-on interest generally starts with a particular interest rate (say an annual rate of 5.69%), and a term (say 5 years). Then, the total amount of the add-on interest over the term is calculated, added to the principal, and divided equally by the number of payments. So at an add-on interest rate of 5.69%, we have the following math for the $18,500 loan:

18,500 x 5.69% x 5 = $5,263.25 interest.
(18,500 + 5,263.25) / 60 = $396.05 monthly.

I won’t go into the math, but the APR on this 5.69% add-on loan is 10.33%. See http://www.math.hawaii.edu/~hile/math100/consb.htm

2. Contrary to both your article and the calculator you reference (http://www.freeonlinecalculator.net/calculators/loan/auto-simple.php), the APR on a 60-month loan of 18,500 with a finance charge of $2,726.20 is 5.547%, not 5.69%. 5.69% is the APY for the same loan, although I’ve never seen a loan quoted using an APY.
Check my result using any financial calculator or the numerous online calculors:

PV: 18500
Term: 5 years
Rate: 5.547%
yields a monthly payment of $353.77, and the finance charge of $2,726.20:

$353.77 x 60 = $21,226.20,
$21,226.20 – 18,500 = $2,726.20

]]> By: Kishor Prasad http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/comment-page-1/#comment-3603 Kishor Prasad Fri, 14 Nov 2008 05:29:35 +0000 http://mindyourdecisions.com/blog/?p=785#comment-3603 It is best calculation. It is great post for me. I always thought about a great post for car loan finance but I found today. Nice post. Thanks http://financeforrealstate.blogspot.com/ It is best calculation. It is great post for me. I always thought about a great post for car loan finance but I found today. Nice post.

Thanks
http://financeforrealstate.blogspot.com/

]]> By: Presh Talwalkar http://mindyourdecisions.com/blog/2008/10/16/is-your-car-loan-more-expensive-than-you-think-the-difference-between-apr-and-the-total-interest-you-have-to-pay/comment-page-1/#comment-3174 Presh Talwalkar Thu, 23 Oct 2008 07:33:54 +0000 http://mindyourdecisions.com/blog/?p=785#comment-3174 <b><em>Sam</b></em>: Good question. My understanding is extra payments go toward principal, but I have also read that older loan contracts did not do this an instead somehow gave lenders more money. So it's important to read the contract... If the loan payments do in fact go toward principal, then mathematically you should be saving interest with extra payments. Here are two good calculators on this topic: 1. cool graphics, easy to understand: http://www.finance.cch.com/sohoApplets/AutoPayoff.asp 2. details on exact interest/principal breakdown of new loan repayment: http://www.bankrate.com/brm/auto-loan-calculator.asp The calculators may look different but they are really the same thing expressed in different ways. Sam:
Good question. My understanding is extra payments go toward principal, but I have also read that older loan contracts did not do this an instead somehow gave lenders more money. So it’s important to read the contract…

If the loan payments do in fact go toward principal, then mathematically you should be saving interest with extra payments. Here are two good calculators on this topic:

1. cool graphics, easy to understand:

http://www.finance.cch.com/sohoApplets/AutoPayoff.asp

2. details on exact interest/principal breakdown of new loan repayment:

http://www.bankrate.com/brm/auto-loan-calculator.asp

The calculators may look different but they are really the same thing expressed in different ways.

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