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Wednesday, May 5, 2010

Understanding my vehicle loan

I am almost at the end of Year 1 of my Vehicle Loan. I bought it at the beginning of last June. There was a 0% financing being offered across the car companies then but it was with the little hidden window that the loan must be paid off in 3 years or  you would have to pay interest for the whole time.

They also offered $7500 cashback with the then current rate of 7.29%

Well I knew I couldn't guarantee I could pay it off in 3 years. I asked my saleman (whom I also know via his wife) which was the better money deal: The Original price with the pay off in 3 years 0% or the cashback and then the 7.29%. We scratched out the math and the latter was the better option.

I asked which more ppl went with. He said most went with the 0 but most of those folk couldn't pay it off in the three years and interest was added.

So I went for the cashback, knowing that within a year I would be done my consolidated loan and I could start kicking extra on to the principal. I have only put one teeny lump sum payment down thus far and it was for this month so I will find out later today if that did anything beyond taking $100 off.

Here is my question to you smart folks. Be be kind and gentle with my lack of understanding :P

I understand that the interest amount should change over the period of the loan as the principal goes smaller and smaller. My interest rate is fixed. So why, in the past 10 months, has my interest moved both up and down so strangely? Again, just the basic payment was made for these. Here are the interest amounts for those months.

Interest has varied $177, $181, $178, 170, $173, $165, $168, $165, $147, $160

There is quite a range here. In particular, the $147 seems out of whack somehow.

I am curious what it will be later today when my regular monthly loan is processed and includes the extra $100 lump sum payment. (The killing off of interest fanscinates and really motivates me)

So I leave my 'why the heck does the interest go up and down like that' question for you all and I will tune back in later today when the loan goes through and I learn more new things.

4 comments:

Money Beagle said...

The interest is compounded daily on auto loans is what I understand. The lower amounts may be because there were less days in the month, so more of your payment goes to principal, whereas days with 31 days will see you paying more interest because of the extra days.

This is my guess, anyways.

Morgaine said...

Hi Jolie,

I think its based on days in a month. The lowest month appears to be February which only has 28 days. That's my somewhat educated guess!

Good job on calculating out the different options. Obviously the 0%is used to "trick" those who don't think to calculate the two options, they hear 0 and jump all over it.

Jolie said...

You two are so smart, and explained it so even 'I' can understand. Thank you very very much :-)

Jessie said...

Wow - i didn't know about the daily calculation - but it makes sense.

Thanks for asking the question so these folks could share the answer!