Financing a used car

[Tom7227]

My son is ready to pull the trigger on a used car out in California. The dealer offers 1.99% financing and the credit union offers 2.2% Back a long time ago I remember that some companies used something called the rule of 64's or the rule of 72's or some name. Repayment was set up so that the first month the whole payment went to interest, second month 1/72 went to principle, rest to interest and on down. If you prepaid anything you got burned. Pretty sure that at least my credit union doesn't do it this way.

Does anyone know if the way that I described is still used by some loan companies?

Thanks for your time.

Tom

[delcecchi]

If the payments are constant and interest rate fixed what you describe is impossible. If the first month all the payment goes to interest, then all subsequent months it will too, since principle is the same.

I can't tell what bizarre scheme the cheating dealer might have. Probably some percent of unpaid balance.

You will need to read the fine print as to payoff amounts and so forth.

[LwnmwnMan2]

My son is ready to pull the trigger on a used car out in California. The dealer offers 1.99% financing and the credit union offers 2.2% Back a long time ago I remember that some companies used something called the rule of 64's or the rule of 72's or some name. Repayment was set up so that the first month the whole payment went to interest, second month 1/72 went to principle, rest to interest and on down. If you prepaid anything you got burned. Pretty sure that at least my credit union doesn't do it this way.

Does anyone know if the way that I described is still used by some loan companies?

Thanks for your time.

Tom

The rule of 72 is a way to determine how often the money doubles and is usually meant with savings, not payments. If you make payments, then your principle is (should be) going down. Say you have a percentage of 12%. Every 6 years (roughly) your money would double.

Likewise, if you have a credit card with 24% interest and you only pay the interest each month (minimum payment) then every 3 years (roughly) you've paid off the balance.