Amortization Schedule

Car Loan Amortization Schedule

Car Loan Amortization Schedule Reveals Your Lender's Motive

Ever wonder why a person can buy a new car, drive it off a lot and find they owe more than the car is worth, even if they made a large down payment? Two factors come into play to make this happen. The first is natural depreciation. The second one you can discover by reviewing a car loan amortization schedule.

A car loan amortization schedule works just like a mortgage loan amortization schedule. The only difference is the principal amounts and payment terms will be much, much shorter. A car loan amortization schedule is nothing more than a document or a computer printout that shows how principal and interest payments will work over the life of the loan. This schedule also shows how lenders compound interest on the principal to ensure that they make some money. When you take out a car loan over a 5-year term, the 5 percent interest rate, for example, compounds. This means repaying a $10,000 loan will involve an amount much higher than $10,500 if you keep the loan over the entire 60 months.

Using an auto loan amortization schedule to see exactly how payments work can be a smart thing for a buyer to do. Not only does this show you the fine details of a loan offer, it also shows exactly why simple interest loans and early repayment can save you a bundle. A typical car loan amortization schedule will show much higher interest payments on the front end of the loan. The first year or more of payments will almost only go to service the money the bank or lender intends to make. This means you only reduce the principal by a small amount. This is the amount the interest will compound on. When you pay extra against the principal, an option you have with a simple interest loan, you can reduce the overall repayment dramatically. While the "regular payments" will continue, the principal amount will go down much faster. As it does, the money the lenders can charge interest on will go down, too.

While loan amortization schedules won't help with the depreciation problem, it can help a person see how to get out of being upside down much faster. Even slightly higher than normal payments can help chip away at the principal amount and enable a car buyer to pay out less over the life of the loan. It's also possible that higher or extra payments can buy a person out of a loan quicker and for a lower overall payout than the regular terms. The banks don't love this, but the truth is working a car loan amortization schedule to your advantage is smart and acceptable. Most lenders will provide a schedule after you sign for the loan, but they you can also create one using programs on the Internet.

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