The number dealers lead with
A salesperson's favorite sentence is 'this one's interest-free' or 'low monthly payment, just $299.' It sounds like a deal, but car loans hide more than mortgages do. The 'interest-free' version often charges a 'documentation' or 'finance' fee that, once annualized, is not free at all. Run every offer through the car loan calculator before you sign.
Two ways car loans are priced
- Simple amortized (equal monthly): identical to a mortgage formula. On a $15,000 loan at 6% over 3 years, the payment is about $457 and total interest about $1,440.
- Precomputed interest: some dealer loans calculate all the interest upfront, so paying early saves little. Always ask whether interest is simple or precomputed.
What 'dealer subsidized' actually means
When a manufacturer 'pays the interest for you,' that is real — but it is usually bundled with conditions: buy the insurance from them, no early payoff, and a fee still attached. The only honest comparison is total out-the-door cost: down payment + (monthly × months) + all fees. Compare that to the cash price plus normal interest. Whichever is lower wins.
Cash vs financing
The real question is your opportunity cost. If you have $15,000 and could invest it at a return higher than the loan rate, financing and investing the cash can come out ahead. If the cash has no better use, paying cash avoids the interest and the debt. Either is fine; overpaying for a 'free' loan with a big fee is the only bad move. See the ROI calculator to weigh your cash against the rate.
Should you pay it off early?
Unlike mortgages, car loans sometimes carry prepayment penalties or precomputed interest, so early payoff may not save much. Before signing, ask two things: is there a prepayment penalty, and is already-paid interest refundable? The calculator can show total cost for 'pay as scheduled' vs 'pay off at month N.'
The bottom line
Do not let a low monthly payment drive the decision. Put the real numbers — price, term, fees, payoff terms — into the calculator. Three minutes of arithmetic beats an hour of sales talk.