Current Events > Do I lose money if I take a 60 month loan and pay it off fast vs a shorter loan?

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12 or 24 month loan paid in minimal asking increments, whatever is the minimum payment.. Or a 60 month loan which has a much lower minimum payment, but paid incredibly fast, in 12 months.

Which one would you save money on? The 12 or 24 month loan gives higher interest than a 60 month loan, so I'm really curious about this. I am a bio chemist, I did not take any finance courses in college.

This goes for anything I guess. Cars, houses, computers, whatever.. But mainly cars, thats what most people would benefit knowledge on this from.
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Well, you'd probably still have to pay off some amount of interest even if you pay it off early, so the 60 month with lower interest rate would be better for that reason alone. You shouldn't be paying much interest anyway though since you'd be paying it off early.

If you're talking about cars specifically, you also have to consider that if it's a new car they'll want to sell you on GAP insurance but if you're paying it off that early that would be a waste of money imo.
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First, make sure there is no "prepayment penalty." Some loans have terms that do not allow you to pay them off early.

Second, what do you plan to do with the money not going toward a monthly payment? If you can invest the extra and get a good return on it, you're better off with a longer loan paid off over its normal life (so 60 months in your example). That is, instead of paying $150 on a $100 monthly payment (for example), pay the regular $100 payment and invest the $50 elsewhere (not a savings account).

Third, there usually is little value to paying off a car loan early because a car depreciates considerably the moment you drive it off the lot. This is in contrast to a house, which tends to appreciate in value over time. So paying it off early gets you more equity. Not so with a car. So your question actually is very dependent on the goods being financed.
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Also depends on the interest rate.

Say 12 month has 1% monthly rate and 60 has 2%. You pay both at 12 months. Monthly payment $8.3usd

Assume your loan is 100 usd

First month interest for 12month loan would be $1 usd. So from yourmonthly payment you are paying $1 interest and rest toward what you owe. Example you would owe $92.7 usd after paying your fist month. After second month 85.33

In 60month loan your interest would be $2, after payment you would owe $93.7. After second month 87.27

Notice how much it varies due to the interest rate even if you pay them on the same time.

In this example 1%= 1 USD which is not much but depending on the loan amount and interest rate might be too much diference.

Tl;dr: Pick whichever interest rate is lower if you can afford both terms. If interest rate is the same and there is no prepayment penalty pick the longer term but pay it early. This gives you the advantage of should you run into financial difficulties you can pay the minimum without incurring on late fees.
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