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      04-15-2008, 01:28 AM   #1
mistermojorizin
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Car Loan - is a "simple interest" loan OK?

Just wanted to double check with anyone that knows more about finance than me. From what I understand a traditional mortgage is better but most car loans tend to be "simple interest."

Thoughts? thanks
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      04-15-2008, 07:58 AM   #2
Sherifftruman
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Simple intrest is good. It saves you a little bit on finance costs from compound intrest.
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      04-15-2008, 08:02 AM   #3
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No... car loans are not interest only... they are for a fixed term like 60months and by the end of the term you have fully paid for the car and the interest... Not to be harsh but if you can only afford this car with an interest only loan then you can not afford this car, but there again I don;t see any lender doing an interest only loan on a dereicapting asset...

Interest only loans is what got us into the mortgage mess we are in now.
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      04-15-2008, 09:01 AM   #4
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not simple interest.. Compound Interest.
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      04-15-2008, 09:05 AM   #5
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opps I miss read the op... sorry
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      04-15-2008, 09:08 AM   #6
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Simple intrest loan is a traditional load for a car. The interest/principle is a fixed rate for each payment for the term of the loan.
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      04-15-2008, 10:33 AM   #7
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The most significant feature of a simple interest loan is that there are no penalties for early payoff.

This is a big improvement over the old "rule of 78" pre-computed loan tactic of years ago, which favored the lender. Simple interest loans became the norm when the "rule of 78" type loan was disallowed in 1992 by the feds on loans over 61 months. On shorter loans, they are regulated by states, many states not allowing "rule of 78" loans. Pre-computed loans would often lead to some unpleasant surprises for borrowers if they tried to pay off a loan early.

I'm far from being a finance expert, but I did get caught in a "rule of 78" early loan payoff trap years ago, so I learned a little about it. Apparently, some states still allow them.
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      04-15-2008, 12:13 PM   #8
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thanks guys, this pretty much confirms my research. its not interest only and I could afford to pay it out in cash right now, but at 4.25% simple interest i think it makes financial sense to take it.
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      04-05-2012, 01:30 AM   #9
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Car loans and mortgages actually share many of the same traits. Car loans or mortgages, are considered to be one of the more legitimate debts in our society. The interest rate must be attractive enough to the borrower to pursue the loan.

chattel mortgage | equipment finance
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