Auto Loan Payoff vs Investment Calculator

Methodology & Terms

• Payment (Pmt): P·r / (1 - (1+r)^-n), where r = APR/12 and n = remaining term.
• Remaining balance today: Closed-form amortized balance after elapsed months from the loan start.
• Scenarios: A = continue as scheduled; B = accelerate via a one-time payment and/or monthly extras, with the entered penalty added as a separate cost.
• Regular monthly payment: The scheduled payment from the original loan (no extras). Shown on both cards.
• Interest saved (loan): Interest cost in A minus interest cost in B, from today forward.
• After-payoff investing (B): In the payoff month, any unused payment budget is invested at month end. After that, we invest the freed regular payment until A would have finished; we report the interest earned portion of this stream.
• Total benefit of accelerating: Interest saved + investment earnings after payoff − entered prepayment penalty. The penalty is a separate nominal cost.
• Investing extras (A horizon): We invest the one-time amount today and the monthly extras at month end until the accelerated payoff time (B). Both strategies invest any cash left over from a smaller final payment, and all investments grow until the full base payoff time (A). This interest earned is used in the Invest-vs-Accelerate verdict.
• Compounding choice: Monthly uses r = return/12; Annual converts to equivalent monthly: r = (1+R)^1/12−1.
• Vehicle value & upside-down: Depreciation starts at purchase (loan start). Upside-down means loan balance > vehicle value.
• Cash-out saved (A−B): Sum of remaining payments in A minus (remaining payments in B + any one-time + penalty).
• Limits: Excludes taxes/insurance, late fees, changing APR, or fees other than the prepay penalty. Depreciation inputs are user assumptions.
• Example: pay off a 3% car loan or invest? Start a $20,000 loan today with a 60-month term and $200 extra available each month. Assume a constant 6% investment return compounded monthly, no lump sum, and no prepayment penalty. Extra payments finish the loan in 38 months and save about $585 in loan interest. Including earnings on cash freed by payoff, accelerating produces about $1,047 in modeled benefit, versus $1,715 in investment earnings from the extras: investing leads by about $668 at month 60.
• Example: what changes with a 9% car loan? Keep the same $20,000 loan, 60-month term, $200 monthly extra, and assumed 6% investment return. Payoff still occurs in month 38, but loan interest saved rises to about $1,899. The total acceleration benefit is about $2,437, exceeding the $1,715 in investment earnings by about $722. These are fixed-assumption comparisons; actual investment returns can vary and lose value.