Paying car off early

[pirategirl68]

What is the name of your state? Ca.
Hi. I was wondering, is it legal for the finance company to charge the full amount of the loan if paying the car loan off early? For example, a person purchases a vehicle for 25000.00, interest adds another 5000.00 to the purchase price. After paying two payments of 500.00, you want to pay off the car early, so the finance company says, if paid off today, price will be 29000.00. Wouldn’t the early pay off price then be 24000.00? Thanks in advance for any answers.

 

[adjusterjack]

Wouldn’t the early pay off price then be 24000.00?

Not necessarily. But not $29,000 unless there is a pre-payment penalty in your contract. Read it carefully.

Use the following calculator to determine what your balance should be after two payments.

http://www.bretwhissel.net/amortization/amortize.html
Start with the "Amount Financed" that appears on your purchase contract. Put in the other parameters. Check to show the amortization schedule.

Then ask the lender to explain the difference.

 

[FlyingRon]

Yes AJ describes it right. Neither your strawman lender nor your own calculation is correct.

Car loans are simple interest. Let's say you borrowed $25,000 @ 5% for 60 months.
Your payment would be about $113. The first payment would have $104 of that go to interest and $9 go to paying down the principal. You would now owe $24,991. After a second payment you'd owe 24,982. If you were to pay it off right at the time you made the second payment, you'd owe that much. If you waited until the third payment was due, you'd owe another $104 in interest for the month and that would be added to the $24,982.

As AJ says there may be fees for terminating early, but it's unlikely to be the total interest due for the loan which would be $43,000+ plus.