Advance versus arrears
A payment in arrears is made at the end of the month, after interest has accrued. A payment in advance is made at the start, so the balance falls a month earlier and less interest builds up.
The difference is one month's discount on each payment, which is small per month but adds up over a long term.
Worked example
£20,000 at 7% over 60 months costs £396.02 a month in arrears, or £393.73 in advance. The difference is £2.30 a month.
Total paid in advance is £23,623.63, with £3,623.63 of interest. The same loan in arrears costs about £2.30 more each month.
Why lenders offer it
Paying in advance reduces the lender's exposure slightly and matches how some lease and hire agreements are structured. It can also make budgeting easier because the payment leaves at the start of the month.
Check which convention your agreement uses before comparing quotes: the same rate can produce two different payments.
Inputs for the advanced car loan payment calculator
Amount financed
The amount borrowed after any deposit.
Interest rate (nominal)
The yearly rate before monthly compounding.
Term
The number of monthly payments.
CALCULATOR QUESTIONS
Advanced car loan payment calculator questions
Is paying in advance cheaper?
Slightly. The payment and the total interest are both a little lower.
How much lower is the payment?
In the example, £393.73 against £396.02, a difference of £2.30 a month.
Which convention do most car loans use?
Most use arrears. Check the agreement, because the difference matters when comparing quotes.
Does it change the APR?
The APR calculation accounts for payment timing, so an advance-payment loan can show a slightly different APR for the same rate.