The Auto Loan Calculator Protection From Rebates

It is possible with some good research about auto loans to find one that you may think is a good deal, but if you do not do the maths, using an auto loan calculator, then you may be in for a few surprises.  In fact, there are many deals out there that offer an interest rebate or a refund, and on the face of this these appear to be a worthwhile deal.  However, you should be leery about such auto loans as you may unwittingly calculate your payment schedule, even if you use an auto loan calculator, and realize as the months pass that your calculations are completely off.
The fact is that if you sign up for any loan promising interest rebates or a refund that you are stuck in an auto loan agreement that could cause you potential problems.  The reality is that even though the auto loan may be computed using your auto loan calculator in advance, the type of interest you are getting is variable and not the simple interest that you may have been led to believe, and this is where great mistakes in calculations with an auto loan calculator can go terribly wrong.
As you are no doubt aware, variable interest is interest that can change according to the changes in the economy, fluctuating up or down, which ultimately will change the amount of each payment that you make.  Plus, if you have signed up for an auto loan with one set of designated payments, budgeted it into your monthly expenses, then you may be forced to adjust your finances to accommodate any changes or alternatively get to the last payment and have a serious shock as some lenders will wait until then to add on the excess that was accumulated due to these changes.  Thus the use of any auto loan calculator has its downside, not the fault of the calculator, but the information that you will be using to do your calculations, specifically the interest rate that is applied to your auto loan.
Such auto loans use the ‘rule of 78s’ to compute your payments and if you have not asked if the interest rate is variable or simple, then your contract for the amount you thought that you would have to pay is ultimately one that may cost you more than you expected and allow the lender to make more money out of you.  Is this fair? In hindsight, after signing, the answer could be ‘no’, but the reality is that once you sign an auto loan contract, no amount of complaining or use of an auto loan calculator to present calculations as proof of your complaint to the lender will have any legal bearing.
The best advice that anyone can give you is that no matter what perfect auto loan calculator you used, you should read all the terms and conditions for the auto loan contract before signing it, specifically all the small print on the back.  Look at the prepayments section or subprime section for detailed information about the type of interest and most importantly if the ‘rule of 78s’ is mentioned, but also check the front for the terms ‘rebate of interest’ or ‘refund of interest’.  Even if the rule is not mentioned, you can pretty well guarantee that variable interest will be mentioned, and unless you are willing to foot the extra costs, can afford to do so, to keep an eye on the changing interest rates and most importantly recalculate your payments each month, then you should avoid this type of auto loan and look for one that uses simple interest.

Tags: auto loan, auto loan calculator
Filed under: Auto Loan Calculator