Dodge Financing 101: Prepay Penalties (and How to Avoid Them)
If you’re considering applying for Dodge financing, you should know about prepay penalties. These are additional fees that may apply if you make payments early. Here’s how to avoid these penalties, and how Helfman Dodge Chrysler Jeep® RAM FIAT can help!
What Are Prepay Penalties?
When you take out a Dodge auto loan, you make incremental monthly payments to your lender in order to cover the price of your car. Loan contracts are often very specific about when and how you can make payments.
You also pay a portion of interest each month, which is calculated as an additional percentage of the principal amount. To ensure that they can profit from interest, some lenders charge fees for making early or extra payments. This is called a prepay penalty, and it’s usually a percentage of your remaining loan balance. For example, if you take out a 36-month loan on a new Dodge vehicle, but you wish to pay it off in 30 months, lenders may charge a penalty that is approximately equal to the amount of interest you would have paid in six months.
How Do Prepay Penalties Affect You?
Paying off your loan early might sound like a great idea, but prepay penalties ensure that you’ll still end up paying the same amount of interest. If your Dodge auto loan contract includes a prepay clause and you attempt to make an early or extra payment, you’ll lower costs for yourself month-to-month, but in the long run, you won’t be able to reduce the principal amount that you owe. In some cases, the savings you get from paying off your loan early won’t outweigh the cost of the penalty.
How to Avoid Prepay Penalties
The best way to avoid prepay penalties is to negotiate a financing plan that works for you. If you are comfortable with the terms spelled out in your contract, prepay penalties don’t have to be an issue for you. Be sure to discuss your concerns with your lender. You may be able to negotiate a contract that doesn’t include a prepay penalty clause.
Learn More about Dodge Financing in Houston, TX
At Helfman Dodge Chrysler Jeep RAM FIAT, our first priority is getting you behind the wheel of a car you love, and we’re ready to help with personalized financing plans that meet your needs. Get in touch with the finance center at our Houston, TX Dodge dealership today to find out what we can do for you. You can also apply for Dodge financing online now!