Car payment questions... Help me out guys!

[Valhalla1]

Okay, I bought my car this past summer. My dad's credit is suck, plus I wanted to get the loan and everything associated only with me, so I didn't have a co-signer for my car loan. They had to go to several banks to find one who would finance me, and the interest rate is out of this world.

anyway, the contract is for 36 months. However, due to my income, I can pay the car off in the next 10-12 months. What I need to know is, what is the best way of doing this?

I called the bank, and a customer support person told me I should make 2 or 3 payments at a time. They gave me a payment coupon book, to include that month's coupon with the check for that monthly payment. They told me to like pay this month and next month now, and to include both coupons with the payment.

However, I got to thinking.. and it seems that will really screw me over, because then I will end up paying the full 36 months worth of interest anyway, even though it seems I'm avoiding it by paying it off early.

So would be best thing to do be to instead of paying $320 for this months payment, to write a check for $1000 instead, and just include this months coupon? By the banks advice, I would write 3 seperate checks for $320 each, and include all three coupons.

Which is the better way, which will save me money on interest? Or does it not matter in the end?



thanks

 

[Valhalla1]

jeez this thing dropped to the bottom fast. :Q

 

[guyver01]

i dunno... good question... going thru the same thing next week... bought a new car... paid cash for "most" of it... $24,000... paying $6,000... $12,000 trade... means i'm only financing about $7,000... i've got some CD's coming mature next month.. which means i'll be able to pay the entire finance off in 4 months!!! The bank is giving me 7.75% finance... monthly is only $400..

so i wanna make a lump sum payment all at once... but don't wanna pay the interest for the 24month loan..

 

[perry]

You should be able to make all the payments at once then they'll send you new coupon books with updated payments in it. Be careful you don't have an early payoff penalty, some loans have that..

 

[Yo Ma Ma]

You need to call and get a current payoff total.

 

[sirfergy]

Yeah, not all loans let you pay off early without paying full interest charges.

My previous car loan did that, so there was little point in paying any quicker.

 

[Valhalla1]

okay, assuming there is no early payment fee, would the best bet be to just pay $1000 for a single months' payment, and only include that coupon?

I have a 800 # I can call to get the current payoff amount. As it stands, I've made like 5 payments and I have hardly paid down on the actual loan, its been almost completely interest

 

[vi edit]

Assuming you don't have any penalty for early payoff, the way that "saves" you the most money is to pay off the loan as soon as possible providing you can't make more money investing the extra $$.

I think I remember you saying that you have some insane interest rate like 19% or something. In that case you are paying interest fees out the ass and barely whacking away at the principle.

Now say you have a $500 monthly payment, on your very first payment of $500, around $240 dollars of that is in interest!!! Barely half of your payment is going twords the principal!!!

The quicker you lower the principle, the less you pay in interest. The sooner you pay off the loan, the less you pay.

 

[Valhalla1]

19% sheeiiit.. I WISH it was 19%.. thats low compared to mine. Yes, its that bad. but I was 18, and my credit "report" was a blank sheet of paper. no kidding.


okay.. well I'm trying to pay off early, but is the better way to make like 3 or 4 monthly payments in a single month, including those month's coupons with the payments, or to just pay the cash equivalent of 3-4 months on a single month's payment?

 

[vi edit]

Whoops, misread the question. Personally, I would write out a single check for $1000 and include that month's coupon. I would not write out three different checks and three different coupons.

Not sure how your bank works, but none of the ones that I have worked with allow me to "pay in advance" so to speak. It sounds much simpler to me to just write out one check and include one payment slip.

 

[vi edit]

By making a $600 higher payment in one month, you have in more or less wiped out $600 on the principle. That is $600 less that you pay interest on the next month. I still say write out one check for $1000 and then pay your normal amount next month.

 

[Valhalla1]

thats what I was thinking.. I'll call my creditor to make sure that I can do this.

 

[Valhalla1]

thanks for the info.

any other opinions?

 

[phatcow]

NINETEEN PERCENT? arent most car loans like 10 - 13 percent?
BTW.. how old r u, and any recommendations on a financing institution? I'm in a similar situation as you...

 

[SVTPower]

What I did to get started was I bougt a cheaper used car that I could deal with for 10 month's, and made sure ALL my payments were on time, then I took it in for a trade in. Since I had car payment history on my credit it helped more then anything else.

My 1st 2 cars I paid for with cash, that was a mistake, paying some interest on a $3-$4K car and getting credit is worth it.

 

[ajskydiver]

You *must* specify that any overpayment is to be applied toward your principle--otherwise it will only pay off interest that would accrue. They will *not* automatically take an overpayment and reduce the principle.

 

[Valhalla1]

<< NINETEEN PERCENT? arent most car loans like 10 - 13 percent? >>

Nineteen? Mine is WELL OVER 19 percent. thats why I'm trying to get rid of this loan. I have the income to easily take care of it - the question is what is the best way to do so. Like I said, I'm 19 now, I got the loan when I was 18 with no co-signer and my credit report was a blank sheet of paper.

I've since gotten 3 credit cards, used 1 a lot, paid them off, had my credit limit tripled on 2 of them.

How do I go about specifying that overpay be put on principle? A note included with the check or what? I'm lost here... dissenting opinions, save me!

 

[Cheapster]

Like mentioned, you need to call if there are any penalties for early payoff. Then be sure to write on the check &quot;apply toward principal&quot;, otherwise they might screw you over. I've never heard of a place telling you to write separate checks, sounds like the CSR was stupid or trying to screw you.

 

[Stallion]

Some where on the payment slip it might say &quot;apply towards principle&quot;. At least it does on our house payment slip. To make it easy on yourself why don't you just save the extra cash and when you have enough to pay it off just go to the bank and do it all at once. That way there is no need to worry about what cash goes where.

If you pay 300 but can afford 1000, just put the extra 700 aside each month and when you have what you need to pay it off just walk in a throw down the cash. It's the same as paying 1000 a month but you will gain some intrest on that 700 in your own account.

Say you owe 7,000...you can pay 1,000 a month for 7 months or 300 a month for 7 months and then at the end of those 7 months go in there with the 4,900 you have been saving and pay it off plus you might of made about 50 bucks intrest.


By paying more each month your payment doesn't go down and the intrest will always be the same. I would keep the extra cash till you had enough to pay it off in full.

If it was a house payment for 30 years that might be a different story but on a 3 year car loan I would wait.

 

[AnimeKnight]

DAMN 19%

Anyhow this is what my opinion
1. find out if there is a charge for early payoff
2. one check in the amount of $1000 with one month coupon
3. make sure somewhere on the check and also the coupon write PRINCIPLE ONLY or else you will be paying your interests and you won't pay off your debit

The earlier you pay off the principle the less interest you accumulate.

phatcow
I would suggest any credit union if you are eligible for it. They have the lowest interest rate. Or check smaller banks usually their intereste rate are lower as well.. I am paying 8.9% from teacher credit union and This is my first car loan

I kinda did what SVTPower did.. build up my credit and get a loan to buy my car i guess couple hundred or thousand to build up your credit is worth it since everything in this country depends on credit


*edit*
Just read Stallion's post.. his idea is pretty good too.. save the money in a MMA account or saving account until you can pay in full and then call for the payoff amount.. or invest in it never know you might get lucky hehe

 

[satori]

sirfergy:

That's >exactly< what happened to me with my car loan a few years back. The dealer tricked me into financing through them (looonnggg story), but a deal signed was a deal signed. Anyways, it was something like a 36 or 48 month, but I was planning on paying it off in a year or so. Stupid me assumed it worked like all the other loans I had looked at and even the one I was originally planning on using and had been approved for (peoplefirst.com I believe). So, the first month, I sent in my monthly-payment plus something like $1000. Then, the second month did the same thing, but sent in an add'l $2000 towards the principal.

Well, it didn't seem like my monthly required payments were getting any smaller. So, called them up and they said, &quot;Oh yah, that extra money you've been sending in isn't counting for anything. You're still gonna be charged the full financed interest, until you pay off the entire amount.&quot; Pissed the hell out of me, so I paid off the loan a couple days later.

 

[Stallion]

satori, I don't know if I have ever had a payment (car or house) that went down in payment because I payed extra. We pay extra on our house every month but the payment will never get any smaller(just bigger with property taxes). It just means that the extra money goes to the princliple ammount of the loan. If you specify &quot;princple&quot; on your payment.

If your payment was $300 and you payed $1000 ,your next months payment would still be $300 and would continue to be $300 every month till you payed off the loan.

 

[satori]

stallion: I guess this was a while back (2-3 years?), so my memory's s little fuzzy. But, I remember calling the loan company and asking them about this, and they said the money wasn't actually going towards the principle. So, unless I actually paid off the full amount, that extra money would just be held to pay for future payments. I can't remember what term they used for it. Fixed-interest? Fixed-fee?

 

[Emulex]

just call , get the payoff rate, go refinance it for a lower rate. simple stuff!

 

[kranky]

I would suggest this: find your loan papers and see how the interest is calculated. Terms to look for are &quot;simple interest&quot; &quot;declining balance&quot; &quot;Rule of 78s&quot; &quot;add-on interest&quot; &quot;prepayment penalty&quot;. Not all of those terms will be there, but one or more may be. If your loan is a &quot;simple interest&quot; or &quot;declining balance&quot; loan, and there is no prepayment penalty, you can pay off your loan early and you won't have spent any more than necessary.

If you see &quot;Rule of 78s&quot; in there in reference to paying off the loan early, you are going to get screwed somewhat, but there's nothing you can do about it.

There's a good (but long) explanation of various loan structures here; search the page for &quot;repayment is early&quot; for some examples.