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Usual Disclaimers: Searched but couldn't find related topic. However, I'm sure it's entirely possible I missed it because I don't know what the technical financial term for this action is. Please feel free to redirect me if I'm being a nubb (my sister's technical term for "total moron").

Situation: The bank will offer me a 9% auto loan. The credit union will offer 6.9% but if I understand what she said correctly, they will apply the interest for the ENTIRE 3 year life of the loan right up front.

My questions:
Is this typical to do with an auto loan? Will all financial institutions do this?
Why would they have this policy? Are they trying to ensure that people don't do an early repay to save interest?
Since I was planning to pay off the loan fairly quickly in larger payments (~6 mos.), specifically in order to AVOID the interest, should I go with the bank instead?
Did I misunderstand her? Is there another common practice re. auto loans with which you gurus are familiar that she might have been referring to?

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You are correct....the bank seems to be offering a simple-interest loan, while the credit union is offering a front-loaded loan. Interest will be calculated daily with the bank loan, so if you pay it off early, you'll only pay the amount of interest in relation to the actual length of time borrowed.

The Credit Union will calculate the entire amount of interest up front, apply it to the principle, then calculate the amount of payments based on the loan term. The catch is that they will be applying more of your payments during the beginning of the loan towards the interest, and NOT to the principle of the loan. They will consider this concept to calculate a payoff amount using what's called the "rule of 78s", if you decide to payoff the loan early. You will then effectively pay more interest over the actual length of the loan.

Front-loaded loans are common with fix-rate mortgages, because the lenders rationale is that they should be entitled to most of the interest during the time when the borrower gets the most use of it - the first few years. I've never heard of an auto-loan being front-loaded though. But I guess a lender could do it. Lucky you read the fine print!!!!

Ooops! - deleted double post.

Holy cow 9%? Is this for a new car? If you have good credit score, you should definitely do better.

LeggsRobbins said: [Q]Usual Disclaimers: Searched but couldn't find related topic. However, I'm sure it's entirely possible I missed it because I don't know what the technical financial term for this action is. Please feel free to redirect me if I'm being a nubb (my sister's technical term for "total moron").

Situation: The bank will offer me a 9% auto loan. The credit union will offer 6.9% but if I understand what she said correctly, they will apply the interest for the ENTIRE 3 year life of the loan right up front.

My questions:
Is this typical to do with an auto loan? Will all financial institutions do this?
Why would they have this policy? Are they trying to ensure that people don't do an early repay to save interest?
Since I was planning to pay off the loan fairly quickly in larger payments (~6 mos.), specifically in order to AVOID the interest, should I go with the bank instead?
Did I misunderstand her? Is there another common practice re. auto loans with which you gurus are familiar that she might have been referring to?

My dad, when he came here in the 70's didn't speak English very well and got swindled into a 27% car loan... don't think they are out there for your best interest.

No wonder he pays cash for everything now.

Tell the guy 9% is nuts and go somewhere else. And steal a pen from his desk while you're at it.



Sent you a PM (over on that other site), my credit union loans are starting at 5.75% right now and do not front load the interest. Maybe they can help you.

CheapDB said: [Q]Front-loaded loans are common with fix-rate mortgages, because the lenders rationale is that they should be entitled to most of the interest during the time when the borrower gets the most use of it - the first few years. I've never heard of an auto-loan being front-loaded though.

Front-loaded loans had long been a staple of car dealers, and they aren't by any means extinct.

I came across this article before and was able to dig it back. Many states had outlawed the front-loading:


article

To bad your state is not.

Wow! I'm learning so much!

Okay, I asked the loan officer at the credit union about the loan and she called it a simple interest loan, compounded daily, which if I understand correctly means that they calculate your interest payment based on daily compounding over the life of the loan and then just include that in your loan amount; then it doesn't matter if you pay it off tomorrow, next week, or in three years: you always pay interest for the original length of the loan.

The bank, on the other hand, does compounded interest, (is that the correct term for a loan where the interest accrues gradually over the life of the loan?) but charges what seemed to me, and according to you guys is, an absurd rate, especially for a couple with top-tier credit scores.

So . . . they both want to screw me, is what you guys are saying. Where should I go? What should I look into?

Is this the part where I get all psyched out because you seem to know where I live? LOL. <img src="i/expressions/face-icon-small-happy.gif" border=0>

LeggsRobbins said: [Q] Where should I go? What should I look into?

I don't know if they have the *best* rate out there but Capital One Link is very easy to deal with and has decent auto loan rates.

Well, if your credit score is good, as you say it is, then look around. If you live in the city, there has to be 50 places within a 15 minute drive that would be willing to lend you the money. Check banks and credit unions. See if you insurance company offers loans. Then compare to online. There are a bunch of lenders online that offer much better rates. Do a search of this forum and you will surely find several. Penfed has 4.75% loans up to 5 years (5.24% for 6 years) (note: anyone can join penfed for $25).


there is a car loan thread with many lenders under 3%, search for it

didYOUsearch said: [Q]there is a car loan thread with many lenders under 3%, search for it

I appreciate the referral, though the tone was overtly rude. Lest you think that I deserved it for not searching for auto loans, keep in mind that my OP was asking about this PARTICULAR phenomenon, not asking for auto advice in general, and that I DID search for info about the type of loan I was asking about.

You are, indeed, a cranky member. <img src="i/expressions/face-icon-small-wink.gif" border=0>

LeggsRobbins said: [Q]didYOUsearch said: [Q]there is a car loan thread with many lenders under 3%, search for it

I appreciate the referral, though the tone was overtly rude. Lest you think that I deserved it for not searching for auto loans, keep in mind that my OP was asking about this PARTICULAR phenomenon, not asking for auto advice in general, and that I DID search for info about the type of loan I was asking about.

You are, indeed, a cranky member. <img src="i/expressions/face-icon-small-wink.gif" border=0>


How was that rude ? Get the chip off your shoulder.

mhudson said: [Q]LeggsRobbins said: [Q]didYOUsearch said: [Q]there is a car loan thread with many lenders under 3%, search for it

I appreciate the referral, though the tone was overtly rude. Lest you think that I deserved it for not searching for auto loans, keep in mind that my OP was asking about this PARTICULAR phenomenon, not asking for auto advice in general, and that I DID search for info about the type of loan I was asking about.

You are, indeed, a cranky member. <img src="i/expressions/face-icon-small-wink.gif" border=0>


How was that rude ? Get the chip off your shoulder.

Several things combined to make his comment seem dismissive and rude. First, he used an imperative structure "search for it," rather than making it a suggestion or an indicative, "I bet it's still on here, if you want to search for it." or, "I'm pretty sure a search would bring it up, if you want to give it a try, etc."

Second, OPs title AND tagline both clearly indicate that he considers people who fail to search annoying and an inappropriate nuisance. By having a name like, "DidUsearch," and a tagline, "cranky member," he immediately sets himself up as someone who finds other people who ask questions that hefeels have been answered to be PITAs; it is, therefore, not surprising when other people interpret his comments that way.

Finally, FW, regrettably, has developed an unquestionable reputation as being intolerant of people who ask questions. Given that context, it is, again, not surprising that a commment structured as his was, and posted by someone with a name and tagline like his would be taken as being rude.

I believe that if questioned closely (and answering honestly) he would admit that he was indeed irritated and thinking something along the lines of, "You freakin' moron," when he posted the comment. If, however, I was mistaken and he was actually feeling charitable and offering a kind and enthusiastic referral when he made that post, then I apologize for misinterpreting his comment.

whoa someones just a little uptight , lighten up!

Oh and here comes the spoon

I am entitled to be cranky , and you are correct I have little tolerance for those who dont search (as per my SN). However, my comment in THIS thread was simply to let readers know there was a thread on low rate car loans. it wasnt even directed at you, it was a general comment related to car loans. I was likely feeling lazy when i posted , and didnt feel it was necessary to spoonfeed the link, as it is easily found via search

Pardon me if I come off as harsh...that could be bc I am ...umm....harsh. Its just a post - dont take things so seriously. <img src="i/expressions/face-icon-small-wink.gif" border=0>

Now that Ive taken the time to provide the link, you should really shop around for your loan instead of just considering the 2 options you mentioned, both of which are unusually high rates

didYOUsearch said: [Q]whoa someones just a little uptight , lighten up!

Oh and here comes the spoon

I am entitled to be cranky , and you are correct I have little tolerance for those who dont search (as per my SN). However, my comment in THIS thread was simply to let readers know there was a thread on low rate car loans. it wasnt even directed at you, it was a general comment related to car loans. I was likely feeling lazy when i posted , and didnt feel it was necessary to spoonfeed the link, as it is easily found via search

Pardon me if I come off as harsh...that could be bc I am ...umm....harsh. Its just a post - dont take things so seriously. <img src="i/expressions/face-icon-small-wink.gif" border=0>

Now that Ive taken the time to provide the link, you should really shop around for your loan instead of just considering the 2 options you mentioned, both of which are unusually high rates

I appreciate you taking the time to find the link; I personally don't need it because I did as you suggested and searched once you told me the info was out there, but it might come in handy for others. I'm NOT a spoonfeeding asker, and I can appreciate your frustration with those who are as I often feel the same way, though my method of handling it is to either ignore them or tell them in a very sweet, sugar-coated way that the information is out there on such and such a source if they want to look for it. LOL. *Musing* I don't know. Perhaps that's manipulative; maybe your blunt approach is better. Hmmm.

Anyway, I get your frustration. It was merely your tone that seemed a bit aggressive. However,it seems that I misinterpreted you and again, I apologize, and most importantly, thanks for letting me know about the less than three percent thread.

HigherEd said: [Q]... And steal a pen from his desk while you're at it.

LOL



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