For example:
If you finance a $20,000 vehicle at a 7% tax rate with non-taxable fees of $150 and a down payment of $3,000, the total amount you need to finance on the vehicle comes out to $18,550.
Financing that amount over a course of 60-months at an interest rate of 17% means your monthly payment comes out to around $461. In this example, the total interest that would be paid over the term of the car loan comes out to around $9,110. That’s a pretty hefty chunk of change!
By simply reducing the loan term to 48-months, the monthly payment increases to $536. And while that number is a little bigger than the previous payment number, it’s not an enormous difference. With this strategy, you also pay off the loan 12 months sooner. And by taking on a shorter-term loan, your total interest paid drops to $7,178.