# Simple Finance Charge Auto Loan

## Financing a car? Ask about pre-payment penalties. | Consumer ...

Apr 4, 2014 ... When negotiating terms, ask about a simple interest contract with no pre-payment
..... I got tricked into a "simple finance charge" auto loan.

### Simple Finance Charge Auto Loan

To sum up, interest on a pre-computed loan is calculated in advance and youre on the hook for every penny of it when you sign. Jean ann fox, director of consumer protection for consumer federation of america. So the quicker you pay down your balance the less interest you pay.

The reason? Using the rule of 78s method, your lender applies more of your previous payments toward interest and less of your previous payments toward principal. This compensation may impact how, where and in what order products appear. There are two basic types of auto loans simple interest loans and pre-computed loans.

Rule of 78s is a historical anachronism, says david rubinstein, vice president of the virginia citizens consumer council. Lets say youre ready to pay off your 48-month auto loan a year early. The earlier you try to pay off one of these loans the more youll have to pay.

The rule of 78s is a mathematical formula that was devised in the days before modern calculators. Thats a sure sign youre about to sign on for a pre-computed loan and not a simple interest loan. You dont have to pay 48 months worth of interest.

Our experts have been helping you master your money for four decades. And because it puts the most bucks in his pocket, theres a good chance that a lender offering a pre-computed loan will apply the rule of 78s formula to all prepayments. The rule of 78s can only be applied to pre-computed loans that are paid ahead of schedule.

Folks with less-than-perfect credit should be on the lookout. For a borrower looking to end an auto loan early, there isnt a worse way a lender could calculate your payoff amount. States outlawing use of the rule of 78s formula in installment loans of five years and less carlaw, a monthly legal reporting service for legal compliance specialists in the automobile industry. The higher the interest rate, the more that payoff amount is going to hurt. Fortunately for consumers, simple interest loans are now the norm in the auto financing business.

#### Understanding Your Simple Interest Auto Loan (PDF) - Chase Bank

Your auto loan is calculated using the simple interest method. We calculate the
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## Simple Finance Charge Auto Loan

Finance Charges on Simple Interest Contracts - Toyota Financial ...

On a simple interest contract, finance charges are calculated based on the
unpaid ... the finance charges that have accrued since the last payment was
received.

Simple Finance Charge Auto Loan For a borrower looking to end an auto loan early, there isnt a worse way a lender could calculate your payoff amount. In contrast, with a simple-interest loan youre charged interest each day based on the balance you owe. The earlier you try to pay off one of these loans the more youll have to pay.

The formula was a quick way for lenders in the 1920s and 1930s to estimate payoff amounts when a customer paid ahead on an installment loan. Our tools, rates and advice help no matter where you are on lifes financial journey. Whether a lender can apply the rule of 78s method to installment loans of five years or less is a matter of state law.

Some auto lenders still use the archaic and costly rule of 78s formula to calculate a rebate of finance charges when a customer pays off a loan early. States outlawing use of the rule of 78s formula in installment loans of five years and less carlaw, a monthly legal reporting service for legal compliance specialists in the automobile industry. With a pre-computed loan, the interest owed over the life of the loan is calculated using a standard amortization table.

This compensation may impact how, where and in what order products appear. And because it puts the most bucks in his pocket, theres a good chance that a lender offering a pre-computed loan will apply the rule of 78s formula to all prepayments. Elizabeth renuart, staff attorney at the national consumer law center.

Because you signed on for a pre-computed loan, youre on the hook for 48 months worth of interest even though youre paying off the loan in 36 months. But your lender is going to do you a favor. Check the front of a loan contract to see whether it allows a refund or rebate of interest.

Instead, hes going to determine your payout amount including a rebate for those 12 months worth of finance charges you wont have to pay. Pay ahead with a pre-computed loan that applies the rule of 78s method to prepayments and youll be slammed with a penalty, disguised as a rebate. The rule of 78s can only be applied to pre-computed loans that are paid ahead of schedule. The reason? Using the rule of 78s method, your lender applies more of your previous payments toward interest and less of your previous payments toward principal. The vast majority of auto lenders do not use pre-computed the rule of 78s as it applies to installment auto sales is a relic of the past, says david robertson, executive director of the association of finance and insurance professionals.

### When An Early Auto Loan Payoff Won't Save You Money | Bankrate ...

Sep 21, 2015 ... A simple add-on interest auto loan charges interest as if the initial money ... Read
more Dr. Don columns for additional personal finance advice.

#### Rule of 78 -- Watch out for this auto loan trick - Bankrate.com

Aug 27, 2001 ... In contrast, with a simple-interest loan you're charged interest each ... simple
interest loans are now the norm in the auto financing business.