Finance Question

Question

You have some extra cash this month and you are considering putting it toward your car loan. Your interest rate is 6.6%, you loan payments are $627 per month, and you have 36 months left on your loan. If you pay an additional $1,100 with your next regular $627 payment (due in one month), how much will it reduce the amount of time left to pay off your loan?

Answer 1

It will drop the number of payments from 36 to 34.

 

First what is the loan amount now?

N=36

I= 6.6%/12  =  0.55%

PV= ????

FV= 0

 

Answer current balance is $20,427.09

 

What is we pay down by $1,100?

 

That drops the current balance to  $19,327.09

 

Recalculate to see how many payments it would take to payoff $19,327.09

 

N= ????

I=6.6%/12   =   .55%

PV=  -$19,327.09

PMT = $627           PV and PMT must be opposite signs!

FV = 0                 Paid off

 

Calculate  

N=  34     a reduction of two payments.     The $1,100 will save you 2X $627= $1,254  or net $154 over the life of the loan.