Toyota 3.9% financing...but a penalty for early payoff?

TundraMaxxer · #1 (**permalink**) 03-28-2007, 11:32 PM

Has anyone heard whether there is a penalty for paying off a dealer financing package early? Toyota is offering 3.9% on a 36 month term, but some manufacturers charge you a penalty, or fee, if you pay it off early because they don't get to earn the interest over the life of the loan.

Does anyone who has taken out this financing know if this is the case with Toyota?

ibaxnu · #2 (**permalink**) 03-29-2007, 03:09 AM

I don't know of any auto financing that has a pre-payment penalty. I have had loans thru GMAC, BofA, Chase, TMCC, etc. My Lexus loans have been thru Chase and currently Lexus Financial. My Tundra is thru BofA. I've always paid off early and never had pre-payment penalties. I don't think there's enough money to be made on auto loans for it to have penalties as in the home loan market. Also the 3.9%. is only for those with tier one credit. FICO score 750 and up. You would have to have one big down payment to afford the 36 month loan though. I think most people end up with the 60 month loan at 5.9% which isn't that bad.

nferra2 · #3 (**permalink**) 03-29-2007, 03:16 AM

Yeah, you only need a 680 experian pull to get the 5.9 for 60. In my experience I have only seen one auto loan with a prepayment penalty and it was my wifes loan from a car before we got married. It was a loan on a 93 altima she took out in 00 at 18% interest, my CC's have a lower rate than that. The penalty was equal to what would be the interest if she were to pay it off early (or something simular to that). She paid more interest on that car than what she sold it for to buy her 03 neon...... which was another mistake. She has now agreed (asked me to really)that I can pick out her next car, negotiate and arange financing, she just wants to pick the color.

jfs98466 · #4 (**permalink**) 03-29-2007, 08:20 AM

Funny thing about auto loans.. when you take out an auto loan ALL the interest (over the life of the loan) is added to the loan priincipal.. thus you are paying the year 2,3,4 interest even with the first payment.. so if you pay off early you are not saving anything..and the payoff will contain the interest even for the remaining months of the original loan.. while not an additional charge it could be looked at as a penalty..this is why the auto loan is such good business

awesomebase · #5 (**permalink**) 03-29-2007, 08:34 AM

Quote:

Originally Posted by jfs98466

Funny thing about auto loans.. when you take out an auto loan ALL the interest (over the life of the loan) is added to the loan priincipal.. thus you are paying the year 2,3,4 interest even with the first payment.. so if you pay off early you are not saving anything..and the payoff will contain the interest even for the remaining months of the original loan.. while not an additional charge it could be looked at as a penalty..this is why the auto loan is such good business

Yeah, that is why it is almost always better to finance through the bank! Also, if you go through the bank, you more easily qualify for rebates as usually financing is exclusive to rebates (i.e. $2500 off or 3.9%/36 months).

RAP5 · #6 (**permalink**) 03-29-2007, 08:39 AM

The dealerships here in ATL are using 63 Months at 5.9% so there are 3 extra payments. I think for the most part a penalty applys if you pay off your loan in 90 days or less. That won't be the case with me!

MMitsock · #7 (**permalink**) 03-29-2007, 09:30 AM

It's not really true that you pay for all the interest on a loan even if you pay it off early. It is true your payment in month 1 is more interest than principal and you pay most of the interest in the first half of the loan period, it's on a sliding scale. The earlier you pay off the loan the less interest you pay. They cannot charge you interest on money you have paid back. Some people take out a loan and pay it off in the first month and use this as a bargaining chip during negotiations, the dealers make a commission on selling loans. However, if you pay it off in the first month you only pay the interest for one month, not for the life of the loan.

jliltd · #8 (**permalink**) 04-07-2007, 02:53 PM

I don't know where all this talk of pre-configured interest is coming from. That would be illegal in most situations. Also, Toyota is not requiring anything down for the 3.9% 36-month deal so there is not a "one big downpayment". If your credit score is high enough to qualify there is no down requirement.

I got the 3.9% deal and it is amortorized over the term, as are most legal fixed-rate loans. The opening principal balance is exactly the final price negotiated with the dealer and does not have all future interest added in (again, this would be an illegal and usury practice). The very fact that loans must be amortorized over the term is what makes it so powerful to make extra payments early on.

There is no penalty for early payment. Toyota likes making interest, no doubt. But 3.9% is below the federal funds discount rate and so 3.9% is a terrible return for their investment. That's why you don't see banks offering such give-away rates. What Toyota is doing is still self-serving, in that it facilitates vehicle sales volume which helps their whole corporate bottom line. They would love you to pay off this 3.9% loan early and free up their capital so they can move on to the next car sale with it.

mln · #9 (**permalink**) 04-07-2007, 03:31 PM

I took the 5.9% from Toy. I specifically asked about pre-payment penalties and was told there were none.

Buckmark23 · #10 (**permalink**) 04-09-2007, 11:05 AM

I just received 3.9% for 60 months on a Certified used Tundra with no pre-pay penalties.

SFTundraMan · #11 (**permalink**) 04-09-2007, 01:23 PM

on most contracts through toyota it states that there can be a prepayment penalty. Here in California it is as stated earlier if you pay off the car in 90 days or less. After that, there isnt any. As far as the statement about you still pay all the interest when you pay it off early. THAT IS COMPLETELY FALSE.