question regarding prepayment on auto loans?

[unformed 0]

Is prepayment without penalty the same as prepayment without having to pay the total finance charges if the loan took as long as it was originally intended?

I got a good refinance rate and although they say "prepayment without penalty" they also say "I will not be entitled to a refund of part of my finance charge." and reading through their terms it sounds as if even if i pay early, I'll have to pay the finance charge that was originally calculated, whereas another offer I have (though not as good of a rate) says the finance charge will be lowered depending on the day I make the payment.

Furthermore, has anybody use e-loan for auto loans?

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[Rainbo 0]

Pay close attention to the wording. If it indicates that the total finance charges are applied at the beginning of the loan then even paying off early mewans you pay the full amount. This is the way a lot of loans used to be. As a way of getting more business many loan agencies started publishing the rate as a percentage of the remaining balance which made it look like you could pay early and save finance charges, but in ther "fine" print it indicated that if you payed it early then you would also pay a prenaalty whichj was usualkly equal to the original finance charge.

The government made lenders be very specific about how they advertise and document these charges so the the "consumer" was not defrauded. In the end if there is a no early payment penalty and your loan is compounded only on the remaining balance then you pay early and less in total when you prepay.

Rainbo
TheSpeedTriple - Speed is everything
"Blessed are those who can give without remembering, and take without forgetting."

[unformed 0]

okay thanks .... that's what I was looking for.

CapitalOne states specifically that the finance charge is "calculated daily on the unpaid portion of the principal balance".

e-loan has nothing of the sort, but ... their interest rate is 2% lower. Then again, I could always refinance the higher one in a few months without shooting myself in the foot ....

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[tigra 0]

To answer your first question- No. A prepayment penalty is a charge or fee (usually a percentage of your loan amount) that the lender reserves the right to charge of you pay your loan off early. Theoretically, if a loan has a prepayment penalty, it is in exchange for a discounted interest rate. The terms and conditions of the prepayment penalty need to be disclosed.

My "expertise" is mortgage loan related, but auto loans and other installment loans tend to work the same way. Finance charges include interest and other costs related to the financing. Interest has to be earned before a lender can collect it, so interest stops accruing when you pay the loan off. The "finance charge" disclosed on your installment note is a combination of interest for the full term of the loan and any closing costs. Any full or partial prepayment reduces that amount. The statement "I will not be entitled to a refund of my finance charge" refers to the finance charges already paid- points, closing costs, interest earned, etc. That's why they use the term "refund". On a mortgage loan, you might pay points to lower your rate. You pay the points up front to lower your interest rate for the life of the loan, but your lender won't prorate back and refund the "unused" portion if you pay the loan off early. Makes sense?

Obviously, I don't have the paperwork in front of me and you should read through it (especially the note) very carefully, but that is a standard clause.

[matt1215 0]

I think Tigra's pretty much right on. I've never had an auto-loan I haven't paid off early and never had any type of penalty. Then again, they've always been through credit-unions.

I've made a habit of applying for a term of loan much longer than I intend to carry it, to generate a low payment, then I double or triple the payment as I'm able.