Let me axe you a stupid question

[LS20]

I have a car loan, and Ive been paying the payments at 1.5x to 2.0x the monthly amount. Is this actually benefiting me, or is it making me pay the same amount more quickly?


For example, a 20,000$ principal loan, with 5% interest, for 48 months, comes out to $30,000 if paid calculated 300$ a month every month (just examples - numbers dont work out)

If I'm paying 500$ a month, will I just end up paying $30,000 MORE QUICKLY, or am I reducing the total owed amount ..thereby benefiting myself

 

[BlueWeasel]

Is the extra payment each month being applied to principal?

 

[Sukhoi]

Ask.

If you're paying down the principal faster and the interest rate stays the same it should be cheaper.

 

[LS20]

thing is , i never specify. every check i write a large amount. sometimes when im feeling spiffy ill send in 2 checks per month. it must go to somewhere....

 

[Injury]

Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

 

[LS20]

thank you good sirs.! ive been previously too lazy to inquire into this

 

[Injury]

Originally posted by: LS20
thing is , i never specify. every check i write a large amount. sometimes when im feeling spiffy ill send in 2 checks per month. it must go to somewhere....

hahaha...

well... they are screwing you then. Never trust a bank to handle your money and accounts in a manner that won't make them the MOST money.

This is the exact reason why they process smaller checks faster and deposits from people with low balances last... they are more likely to rack up overdraws and such!

 

[FP]

The latter. The sooner you pay it off the less interest you pay.

Make sure your extra payments are actually being applied to the principal. Sometimes they are just considered "prepayments" which aren't applied to your principal.

 

[liquid51]

Well, I guess it depends on the fine print on the loan itself. I believe they can vary in that respect. But, in an effort to get rid of our debt (although it is minor compared to some others I know), we make minimum payments on all debt except for the smallest one. All extra funds go toward that debt. When that is payed off, we roll that payment (now plus the minimum from the just completed debt) into the next debt. Once you near the end of your loans/credit cards you're putting a tremendous amount of money toward your debt. I've known of people with roughly $20k in debt, not including cars and house, who've had zero debt and owned their cars AND home in just 7 years using this plan. It takes a lot of commitment and of course varies by income and debt, but clearly enforces the idea that paying your loans/debts off as fast as possible is the way to go. I guess you'd have to be sure that you won't be charged a fee for early completion as well.

 

[ViviTheMage]

Originally posted by: Sukhoi
Ask.

If you're paying down the principal faster and the interest rate stays the same it should be cheaper.

my thoughts too

 

[LS20]

i just called those homies at the bank

they said i dont need to explicitly specify the payment direction. any amount over the monthly amount will go towards principal and if i keep doing this im helping myself. its a CU so i dont think theyre bluffing

im not sure what they really do, but heres an example:

december, 2 payments (1 extra)
1: 600$ - 90$ interest - 510$ principal
2: 600$ - 30$ interest - 570$ principal

january, 1 inflated payment
1: 600$ - 130$ interest - 470$ principal


what i thought would happen was, for my second payment in december, all 600$ would go towards principal. obviously, more OF IT is going towards principal, but i thought ALL should. (770$ should, actually, note is 430)

 

[Zenmervolt]

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

WRONG.

The answer is that it depends on the applicable state laws where you are.

For example, in Washington state, it is legally mandated that excess payments are applied to the principle and that there cannot be any penalty for early payoff.

9 times out of 10, excess payment will be applied directly to principle and not to interest. Only really shady loan companies differ.

ZV

 

[randomint]

<jackie chan>wassup ma n|gga?</jackie chan>

 

[Injury]

Originally posted by: Zenmervolt

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

WRONG.

The answer is that it depends on the applicable state laws where you are.

For example, in Washington state, it is legally mandated that excess payments are applied to the principle and that there cannot be any penalty for early payoff.

9 times out of 10, excess payment will be applied directly to principle and not to interest. Only really shady loan companies differ.

ZV

I would appreciate you not yelling "WRONG" until you actually know if this is true in Texas, where the OP lives. It's fairly rude to do that to me without being certain. My mother worked for a bank for a decade and taught me that while banks appear friendly and polite, they will take every opportunity to make money for themselves, even if it means screwing over or alienating a customer.

 

[Strk]

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

Unless you're dealing with a very shady bank (entirely possible) it usually goes late fees/past due payments --> interest -- principal. Again, unless you got your loan at a shady bank, once you take care of the two former, the rest will go towards the principal.

 

[Zenmervolt]

Originally posted by: Injury

Originally posted by: Zenmervolt

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

WRONG.

The answer is that it depends on the applicable state laws where you are.

For example, in Washington state, it is legally mandated that excess payments are applied to the principle and that there cannot be any penalty for early payoff.

9 times out of 10, excess payment will be applied directly to principle and not to interest. Only really shady loan companies differ.

ZV

I would appreciate you not yelling "WRONG" until you actually know if this is true in Texas, where the OP lives. It's fairly rude to do that to me without being certain. My mother worked for a bank for a decade and taught me that while banks appear friendly and polite, they will take every opportunity to make money for themselves, even if it means screwing over or alienating a customer.

Your answer remains wrong. You stated an absolute. I gave the correct answer, which is that it depends on applicable state law. I most certainly AM certain that my answer is correct and that your overgeneralization is wrong.

Banks will take every opportunity that they legally can, but that still doesn't make you blanket statement correct, regardless of where your mommy worked.

You were wrong. Admit it and deal with it.

ZV

 

[DrPizza]

Originally posted by: Injury

Originally posted by: Zenmervolt

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

WRONG.

The answer is that it depends on the applicable state laws where you are.

For example, in Washington state, it is legally mandated that excess payments are applied to the principle and that there cannot be any penalty for early payoff.

9 times out of 10, excess payment will be applied directly to principle and not to interest. Only really shady loan companies differ.

ZV

I would appreciate you not yelling "WRONG" until you actually know if this is true in Texas, where the OP lives. It's fairly rude to do that to me without being certain. My mother worked for a bank for a decade and taught me that while banks appear friendly and polite, they will take every opportunity to make money for themselves, even if it means screwing over or alienating a customer.

So, your mom worked for a shady bank?? I have accounts in 2 different banks. Deposits are always added to accounts before debits. You're forgetting something: most banks don't have monopolies in their communities. If one continued with those practices for very long, they'd end up losing their customers to the first bank that didn't.

Also, as far as where do the extra payments go, Zenmervolt is probably correct for just about every state in the US. If you don't think so, try this: If your payment is $100 per month, pay them $500 in one lump sum. Then, see if you can get away without paying for the next four months.

edit: is this the bank your mom works at?

 

[KK]

Originally posted by: Injury

Originally posted by: Zenmervolt

Originally posted by: Injury
Unless you are specifically telling them to put the extra money towards the principal... it isn't doing squat.

If you aren't telling them that, you're just paying $30,000 faster and letting them collect interest for time you didn't borrow money and losing out on earning interest on said money.

WRONG.

The answer is that it depends on the applicable state laws where you are.

For example, in Washington state, it is legally mandated that excess payments are applied to the principle and that there cannot be any penalty for early payoff.

9 times out of 10, excess payment will be applied directly to principle and not to interest. Only really shady loan companies differ.

ZV

I would appreciate you not yelling "WRONG" until you actually know if this is true in Texas, where the OP lives. It's fairly rude to do that to me without being certain. My mother worked for a bank for a decade and taught me that while banks appear friendly and polite, they will take every opportunity to make money for themselves, even if it means screwing over or alienating a customer.

Waa, waa. quit being such a pansy.

 

[mugs]

Originally posted by: liquid51
Well, I guess it depends on the fine print on the loan itself. I believe they can vary in that respect. But, in an effort to get rid of our debt (although it is minor compared to some others I know), we make minimum payments on all debt except for the smallest one. All extra funds go toward that debt. When that is payed off, we roll that payment (now plus the minimum from the just completed debt) into the next debt. Once you near the end of your loans/credit cards you're putting a tremendous amount of money toward your debt. I've known of people with roughly $20k in debt, not including cars and house, who've had zero debt and owned their cars AND home in just 7 years using this plan. It takes a lot of commitment and of course varies by income and debt, but clearly enforces the idea that paying your loans/debts off as fast as possible is the way to go. I guess you'd have to be sure that you won't be charged a fee for early completion as well.

The advantage of that method is the feeling of accomplishment from paying off a loan, and a smaller number of loans to deal with. You'd save some money by paying off the loan with the highest interest rate first.

 

[RossMAN]

WTF do you know it all idiots get your information from?

 

[GasX]

It depends on the loan. Read the fine print

Some loans force you to pay the full amount of interest regardless of how fast you pay it off.

Some loans apply extra payments to principal and recalculate interest for each pay period (most loans)

some (like my interest only mortgage) apply extra payments to principal but don't let you off the hook unless you pay $500 to have the interest recalculated once at least $5000 has been paid off.