Please Help Me Understand My Car Loan

[danaf]

Every month I pay $166.87 in interest charges. This never changes. I pay my loan and the slip shows what I pay towards principle which is $217.21 and then interest which is $166.87. The original loan amount was $25,637.93, interest rate 6.60%, term 84 mos.

I input my car loan to bankrate.com and it shows as if every month I should be paying less interest rate due to amortization....yet every month the interest I am paying is the same.

I am totally confused on this issue. Which is correct? The bank, or bankrate's figures?

If the bank continues to charge me what they are taking out in interest, over the term of the loan it will equal up to over 14k which is not what is in my contract.

Please help me understand this.

[twuoo]

The bank is mostly like going to take precidence over what you would find on bankrate.com calculator. I only use the online calculators as a guide, but the bank will ultimately dictate what you are going to pay.

[StartingOver08]

You can ask the lender to send you the amortization schedule for your loan from the start date forward.

[AngelinaCatHub]

You are more than correct. Car loans are generally financed on the “rule of 78’s”. This means; picture a wedge and your interest is up front, as you pay towards the end, you have already paid 99% of the loan and the rest is principal.

A standard load is same interest every payment.

They like rule of 78 since if you trade in, the interest is theirs, and the principle is paid and this is how we get turned up-side-down.

You have some kind of problem and I would go to your lender and ask them for an Amortization Schedule. Also check your paperwork. I think you are being screwed or an error was made somewhere. ‘Hub

[StartingOver08]

However, I don't believe rule of 78's is allowed anymore. Will do more research, but I thought that simple interest was required for at least the last ten yrs or so.

[danaf]

OMG - you guys are the BEST as I didn't expect so many replies so quickly! Thank you so much. I want to see how this ends up and whether or not I should request a meeting with their loan officer to rectify things. But can't go in there not knowing what I'm talking about.

[AngelinaCatHub]

However, I don't believe rule of 78's is allowed anymore. Will do more research, but I thought that simple interest was required for at least the last ten yrs or so.

I'm not sure, and I hope you are right. PM me as to your researche. 'Hub

[StartingOver08]

So far I found this link that says the Rule of 78's is prohibited on loans greater than 61 months, see this from Bankrate (Kansas was the example):

As the above Bankrate artcle points out, in 1992 the U.S. government made using the Rule of 78's illegal for closed-end consumer loans longer than 61 months. Kansas, along with 15 other states, has made the practice illegal in closed-end consumer loans with a loan term of 60 months or less.

http://www.bankrate.com/brm/news/DrDon/20030814a1.asp

Also found out that you can get a rebate of the interest if you prepay (YMMV)
It's illegal to calculate loans with terms longer than 61 months using the Rule of 78, and a number of states outlaw the practice for all loans. But where the Rule of 78 is used, the loans may be described as precomputed or precalculated loans, or as loans that offer a rebate of finance charges if you prepay.

http://financial-dictionary.thefreedictionary.com/Rule+of+78