Car Loan Payoff Calculator

How auto loan interest works

Almost all US car loans are simple-interest, amortising loans. Each month the lender applies one twelfth of your APR to the current balance, takes that as interest, and puts whatever is left of your payment toward the principal. Because the balance falls a little each month, the interest slice shrinks and the principal slice grows — the same payment does progressively more work as the loan matures.

That structure is why extra payments are so effective early on. A dollar of principal paid in month three avoids interest for the entire remaining term; the same dollar paid in the final year avoids almost nothing.

A worked example

Take the loan loaded above: $18,500 remaining at 7.9% APR with a $425 monthly payment. The first month's interest is about $122, so only $303 of that payment reduces what you owe. Left alone, the loan runs roughly four years and costs a little over $2,900 in interest from here.

Add $50 a month and the term shortens by about five months, saving several hundred dollars. Add $150 and you cut more than a year off. No application, no credit check, no fees — just a larger transfer each month. The schedule above shows the change month by month, and the chart shows the two balance curves separating.

Extra payments versus refinancing

Refinancing is worth checking if rates have fallen or your credit score has improved meaningfully since you signed. But watch the term: a refinance that drops your payment by lengthening the loan usually increases the total interest you pay, even at a lower rate. Model the extra-payment route here first, then compare it against any refinance quote using the same payoff date rather than the same monthly payment.

Negative equity and early payoff

Cars depreciate faster than most loans amortise, so it is common to owe more than the vehicle is worth for the first couple of years. Paying extra closes that gap sooner, which matters if the car is written off — gap insurance covers the shortfall, but you can stop paying for it once the loan drops below the vehicle's value.

Before you send the final payment

Ask your lender for an official ten-day payoff quote. It includes interest accrued to the settlement date and any title or processing fee, so it will differ slightly from the estimate here. This calculator assumes a fixed rate, on-time payments and no fees, and uses simple monthly interest — close enough for planning, not a substitute for your lender's figures.