Mortgage and auto loans are different. The formula in the spreadsheet will not work for auto loans. Here is why:
mortgage payments are different from car loan payments. A good way to think about mortgages is that one 30-year mortgage doesn’t have a single loan, but rather individual loans with terms of 360 months, then one for 359 months, then one for 358 months and so on, all strung together.
Each month sees a payment calculated with a smaller loan balance over the new shorter term, and while the total of the payment remains the same, the amount of interest you pay in a given month decreases while the amount of principal a person pays increases. If you prepay mortgage, you save money on paying interest.
Car loans can either be: simple interest add-on (or pre calculated) loans or simple interest amortizing loans. Simple interest add-on loans are written as a single loan. All of the interest that will be due is calculated up front, added to the total of the loan as a finance charge, then that sum is divided over the number of months in the term to arrive at monthly payment.
Each payment consists of exactly the same amount of principal and interest. Prepayment won’t save money because all calculated interest has to be paid. Simple interest amortizing loans are the most common type of auto financing available. They work like a mortgage, with a declining loan balance and declining term producing a constant monthly payment with changing compositions of principal and interest. Prepaying such a loan can save you some money.
