People often want to pay off a loan from Ford Motor Credit early, for a wide variety of reasons.
This is a different process to refinance in the vehicle should be thought of quite separately. Paying a loan of early can always seem like a good idea in terms of getting rid of that, but with a auto loan that has been agreed and the dealership financing there can be problems and it should be investigated carefully.
The main problem lies in how the loan is structured, and the fact there is likely to be a significant penalty charge incurred if the loan is paid off early. An auto loan with Ford credit, or Ford Motor credit, is what is known as a secured loan.
This means that the loan is secured against a vehicle, and in the event of a default on the loan then the company is entitled to repossess vehicle and use whatever value can obtain for it.offset the debt incurred.
Ford Motor Credit Payoff Penalty
The advantage of this type of loan to the consumer is that it means the interest rate is normally less than would be for an unsecured loan, as there is less risk to the company sending the money. The problem arises in terms of how the loan is structured.
There will be an agreed final amount that is lent to the individual, and an interest rate charged on that amount for the duration of the loan.
The way the loan is structured means that the interest that is payable is worked out over the whole period of the loan, and then the repayment of the amount itself is also worked out and a single monthly repayment charge is arrived at that remains the same figure for the duration of the loan period.
This simplifies things enormously and makes it much more straightforward to workout and budget what the loan is going to cost the individual.
The problem comes when someone wants to pay off the loan early. This means that all the copulation is in terms of the site of the downpayment of the loan, the interest rate charged and other factors in terms of what is included in the price of the vehicle would all have to be revisited and completely reworked out.
This is simply not durable and so what companies do is include a hefty penalty charge which would in effect reflect what is the cost of the loan would have been if it had been taken out for a shorter period of time.
This charge, and how it is arrived at should be spelt out in the original loan agreement.