Q:

What is the functional difference between a car loan table and a home loan table?

A:

Quick Answer

The main difference between a home loan table and a car loan table is that while the home loan table follows an amortization schedule, some car loan tables are structured under simple interest-add on schedules, reports HSH.com. Some car loans, however, are also structured under an amortization schedule.

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Full Answer

An amortization schedule is set up so that each monthly payment pays a portion of the principal of the loan and a potion of the full interest to be accrued on the loan over the loan period, says HCH.com. The early payments of such a loan mostly go toward paying the interest, but as this amount decreases, a larger portion of subsequent payments go toward paying off the principal. One of the advantages for the borrower under such a setup is that lump additional payments can lower the cost of the entire loan.

When using a simple interest add-on structure to pay off a loan, each monthly payment is consistently divided to paying off the principal and the interest of the loan throughout the loan period, claims HCH.com. Early payments in the form of lump sums are not worthwhile with such a loan once it is in place because they have no effect on the overall cost of the loan. Some car loans are structured in a way so that all the interest is paid off before any of the principal is paid, but such loans should be avoided.

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