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Where does the interest go if you pay off a loan early?

I have about $21K on my Auto Loan and about 4 more years to go. Chase Bank holds my Auto Loan. I used their pay off quote calculators and it shows that I will have to shell out apprx. $20.5k. I am not sure (or maybe not) if this includes Principal and Interest. Am I missing any obvious gotchas?

  • Answer:

    The current balance is how much you owe, if the payout figure is the same then they are not charging you any fees or interest to pay out the loan early. If there was a difference that could indicate a termination fee but it sounds like you should be fine

Paul Baumgartner at Quora Visit the source

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Interest is typically calculated overnight on per day basis, but displayed / updated on a monthly cycle. The pay-off quote is what you would have to pay them if you decided to pay off today. So they will not charge you the interest for the coming 4 years but it will include the interest that they calculated for each day's overnight interest applicable to the  principal that you have not paid yet. For example if you owe 21k at 5% you pay them an interest of (21000 x  5) / (100 x 365) per day. When you pay a monthly payment, your principal reduces by the excess amount you have paid over the interest, and the next months interest calculation reflects the new principal.

Patanjali Hardikar

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