Are there ever penalties for paying faster than scheduled?

[bogfrog]

If I get a 60 month loan so that I can have low minimum payments, are there ever penalties for paying much more than scheduled each month? Do they charge you the 60 months of interest no matter what you do?

 

I've read a couple places on the internet that it's fine to pay off as fast as you want. Is this always the case or do I have to be careful when I negotiate the financing?

 

I want to pay low monthly payments for the first year, but then start paying much more after that to save on interest.

[MarvBear]

Did you sign a simple interest contract?

[bogfrog]

Did you sign a simple interest contract?

 

I didn't sign anything yet. I haven't even gone to dealerships yet. I'm still deciding if I should buy a car or pursue some another option.

 

I'm asking because if I can get low minimum monthly payments and then have the freedom to pay as much as I want later on in order to save on interest, I think I'll lean toward buying rather than leasing or doing that lease swap thing.

[MarvBear]

oh I see.

 

Then I'd advise signing a simple interest contract if you lean that way.

[mk_378]

Most contracts are simple interest with no pre-payment penalty. I think it is always the case with the manufacturer's finance companies. Of course like anything else you need to read the whole contract before signing.

Edited January 18, 2009 by mk_378

[Anubis]

Some states, such as mine, prohibit any kind of pre-payment penalties on auto loans. It wouldn't hurt to check your state's consumer assistance office to see what your state laws are regarding auto loans, etc.