1. What is the Prepayment Price Formula?

The prepayment price formula calculates the lump sum amount needed to pay off a car loan early. It determines the present value of all remaining EMIs at the current interest rate.

2. How Does the Calculator Work?

The calculator uses the prepayment price formula:

Where:

• \( RB \) — Prepayment price (total amount to pay off loan)
• \( PMT \) — Monthly payment amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( m \) — Number of remaining payment periods

Explanation: The formula calculates the present value of an annuity (the series of remaining payments) at the given interest rate.

3. Importance of Prepayment Calculation

Details: Knowing your prepayment price helps you decide whether paying off your car loan early makes financial sense, considering potential prepayment penalties and alternative investment opportunities.

4. Using the Calculator

Tips: Enter your current monthly payment, monthly interest rate (as a decimal), and number of remaining payments. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why would I want to prepay my car loan?
A: Prepayment can save you money on interest if your loan rate is higher than what you could earn investing elsewhere.

Q2: Are there prepayment penalties?
A: Some lenders charge prepayment penalties. Always check your loan agreement before prepaying.

Q3: How do I convert annual rate to monthly?
A: Divide the annual rate by 12 (e.g., 6% annual = 0.06/12 = 0.005 monthly).

Q4: Does this account for extra payments I've made?
A: No, this assumes you've made all scheduled payments. For irregular payments, you'll need a more detailed calculation.

Q5: Is prepayment always the best option?
A: Not always. Consider your overall financial situation, investment opportunities, and loan terms before deciding.