Final answer:
Doubling the principal repayment each month without increasing the interest payment will significantly reduce both the term of the car loan and the total interest paid over the life of the loan. Option D
Step-by-step explanation:
If you double the principal repayment on your car loan each month without increasing the interest payment, you will achieve two main results.
First, you will reduce the term of the loan, potentially by much more than half, because as you pay down the principal faster, less interest accrues overall. Second, by reducing the principal balance at an accelerated rate, you will pay less total interest over the life of the loan than if you stick to the minimum required payment.
Interest on loans like car loans is typically compounded monthly, meaning that the amount of interest you pay is based on the remaining balance of the loan. As you pay down that balance faster, the interest calculated on the diminishing principal will decrease, resulting in significant interest savings.
While the exact amount of interest saved and the reduction in the loan term can vary based on the specifics of your loan, paying extra towards your principal each month is a sound financial strategy that can lead to substantial savings and earlier payoff of the debt. Option D