1. Avoid loans that are not simple interest.
Simple interest loans have payments that are due on a monthly basis. There are no penalties or higher interest rates if you prepay your loan. Simple Interest is a method of allocating your monthly loan payments between the interest and the principal. The amount of your payment allocated to interest is calculated based on your unpaid principal balance, the interest rate on your loan, and the number of days since your last payment. The remainder of your payment is credited to principal and reduces the unpaid principal balance on your loan. With pre-computed loans, on the other hand, the interest owed over the life of the loan is calculated using a standard amortization table. Once you sign on the dotted line for this type of loan, you're on the hook to pay back principal plus the full amount of interest that will accrue over the entire term of the loan. If you prepay a simple interest loan, there is no penalty. Precomputed loans actually penalize you for early payments. 2. Don't just accept the dealer’s financing offer. Don’t merely accept the dealer’s loan financing before comparing the offer with finance options offered e.g. by your bank or other credit providers. Dealer financing might be less hassle but you could well end up with an expensive loan and more restrictive terms and conditions. Read entire Loan Tips where it was originally published.
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