Question:
I just bought a car and owe R35 000 (without added interest) to the bank which they split over 60 months.

Will I benefit if I pay more than the minimum into this account? Should I do this in the first or second year?

I’ve heard that in your first year or so you only pay interest and your actual instalments only decrease after three years.

Answer:
Yes, you will benefit from increasing your instalments. You are correct in saying that the payments you make in first few years of a car loan comprise mainly interest, so the sooner you can reduce the capital the better.

You took the car over a very long period so you will pay dearly.

To encourage you to pay it off earlier I’ve set out the savings you can achieve on your loan of R35 000 at 16 percent interest:

  • 60 months: Total interest - R13 907.80 (repayment - R815.13)

  • 48 months: Total interest - R12 611.68 (repayment - R991.91; saving - R1295.32)

  • 36 months: Total interest - R9298 (repayment - R1230.50; saving - R4609)

  • 24 months: Total interest – R6112 (repayment - R1713.71; saving - R7795.80)