# Do I save interest by paying off car finance early?



## marshmallow (28 Apr 2009)

Have approx 17k and 3 yrs left on 5 yr car finance with GE money at a 7% rate of interest.  I am thinking of paying off the loan now but from my calculations it looks as though I won't save any money by doing so. Are car finance agreements set up to charge full interest irrespective of an early payment date?
Assumed it would be similar to paying a mortgage early where you actually save money as well as reducing the debt?


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## MandaC (29 Apr 2009)

Depends on the agreement itself and how far into it you pay it off. 

Had a personal loan with AIB for five years and after three years the rebate was so small, it was not worth paying it off.

I would think GE would be similar.


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## moneyhoney (29 Apr 2009)

marshmallow said:


> Have approx 17k and 3 yrs left on 5 yr car finance with GE money at a 7% rate of interest.  I am thinking of paying off the loan now but from my calculations it looks as though I won't save any money by doing so. Are car finance agreements set up to charge full interest irrespective of an early payment date?
> Assumed it would be similar to paying a mortgage early where you actually save money as well as reducing the debt?




Don't mean to be pedantic, but is this a car finance (hire purcgase) agreement or a loan? If it's the former, you'll assume ownership of the car by paying it off early. Otherwise, you won't become legal owner of the car until the end of the agreement (3 years time). 

Just re. calculations, have you asked GE for a settlement figure?


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## paddywhacker (29 Apr 2009)

Far as I know the interest is factored in from the beginning for the full length of the loan so no I don't think you do save any interest but its prob a good idea to clear it if you can rather than have it hanging over you.


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## moneyhoney (29 Apr 2009)

paddywhacker said:


> Far as I know the interest is factored in from the beginning for the full length of the loan so no I don't think you do save any interest but its prob a good idea to clear it if you can rather than have it hanging over you.



I think you'd pften get a 'rebate' on the interest.

If it's a hire purchase agreement, then you have to pay back: the HP price, less what you have paid alreay, less the interest rebate.


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## riversedge (6 May 2009)

You need to check if its a fixed rate or a variable rate and if the interest is front loaded or not. If the interest is front loaded its put on at the beginning of the loan so if you compare the loan balance against the settlement figure you will see if there is a rebate being given


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