Wanting to make a large lump sum payment towards my car loan. Have some questions about interest.?

[AshtonM]

Well I'm a college student and I had to buy a used car because my old faithful mustang was just costing too much to keep fixing. So, I bought a 2007 Outlander. I owe 15,000 on it. Anyway, I've just switched from the Army Guard to the Air Guard and I'm going to training in Dec. I'm gonna be making about 3,500 a month so I decided to put at least 1,500 monthly and then when I get back put my bonus check another 7,500 to pay off the SUV. However, I don't know if the money I'm paying will actually go towards the payment of the SUV or interest because I looked up my payments and like 300 out of 400 dollars of my monthly payments are interest.

I think it probably goes towards the principle (principle is what the actual loan amount is without the interest right?). The carmax guy said that carmax doesn't deal with companies that have penalties for early payment.

[sassy25755]

The extra dollars you pay early in a loan go toward principle
Look at your coupon or statement, there is a line just for extra principle.

[zeuz949]

There are two ways in which auto loans are calculated:

1. Standard amortization
2. Rule of 78

Your finance agreement will specify the method. If it is standard amortization, then you will see there is "no penalty for prepayment" written somewhere in the contract.

If your finance agreement specifies the Rule of 78, you're better off accumulating the money needed to pay off the loan in a separate bank account. Once you have it all, then pay it off -- this minimizes the interest paid under Rule of 78.

[JeffT768]

Anything you pay in addition to the regular payment goes completely toward the principal.