Using Banks and Bank Accounts/auto loan


Just bought a car and am financing it through the dealer (they had a better rate than the one I found elsewhere). The financial manager at the dealership told me that I would be paying a simple interest loan. It is for 60 months but he said that there is no prepayment penalty so I can pay it off as quickly as I want, which I plan on doing in 36 months. My question is, on the back of the finance agreement it says this:

"You may prepay all or part of the unpaid part of the amount financed at any time. If you do so, you must pay the earned and unpaid part of the Finance Charge and all other amounts due up to the date of your payment. If the minimum finance charge is greater than the earned finance charge you may be charged the difference. The minimum finance charge is as follows-$25 if the original amount financed does not exceed $1000 (2) $50 if the original Amount Financed is more than $1000 but not more than $2000 or (3) $75 if the original amount Financed is more than $2000."

What exactly does that mean? Under "Total Payments" it says $9,183.00, which is the Amount Financed ($8,868.35) plus the Finance Charge ($944.65) at and APR of 3.99%. The way I understand this is that the Finance Charge is calculated based on my 60 month term so if I finish paying in under 60 months, the Finance Charge will be lower, thus my "Total Payments" will be less. Is this correct? I'm not exactly sure what that statement above means, but it seems to contradict what my understanding is because it says I "must pay the earned and unpaid part of the Finance Charge."

Hi Joseph,

What this means is you will still paid a fixed interest amount until your loan is fully paid off, your interest payment is still fixed no matter what your principle balance is.

I would definitely contact the financing department of the dealership, to clarify the breakdown it is their responsibility.

Using Banks and Bank Accounts

All Answers

Answers by Expert:

Ask Experts




Anything pertaining to Commercial or Retail Banking. Including, Interest rates, Lending, as well as Prime Rate questions. Also can help with online banking questions including all regulations.


Retail and Commercial banking since 2002. Currently employed as an Assistant Vice President at a Commercial Bank.

Chamber Of Commerce, National Notary Association

Extensive credit knowledge.

©2017 All rights reserved.

[an error occurred while processing this directive]