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Math idiot needs help: If you pay extra on your car loan, does the extra money go directly to the principle?

MichaelD

MichaelD

Lifer
As above. On average, I pay an extra $20-$40 a month towards my truck payment. Does the extra money go directly towards the principle, or does part of it go towards next months' interest...how does this all work?

I am a math idiot, so please explain in simple terminology. 😱 Composition/writing was always my strong suite. Math + Mike = idiot looking like an idiot.
 
Depends on the type of loan you have on the vehicle... if it is a simple interest loan then yes the extra is going directly to the principal of the note.


<------ works @ a bank😀
 
When I pay extra, I usually mark that the extra is to go toward the prinicple. I don't take any chances. Some companies try to apply it to the interest.
 
Really, one of the best things you can do for a simple interest note is to pay one month ahead... the reason that I say that is because the normal interest that would be accrued during the month would be simply by-passed, for lack of a better term.
 
Thanks much. AFAIK, it's a simple interest loan, taken out through a local credit union. It's 5-year note (unfortunately) so I know that my entire first year of payments just pays on interest, basically. I'm trying to get a bit of a leg up on the loan. Thanks much.
 
<<I know that my entire first year of payments just pays on interest,>>

Not really, the interest payments on vehicles usually stay close to the same thoughout the notes lifespan. The interest is accrued normally during the monthly cycle, which is why I said that paying it one month ahead is very beneficial. Mortgage notes are more close to what you stated about the interest being most of the payment for the first few years... which is why they are such good tax shelters. 😉

No prob though... glad to help. 🙂
 
You can go here for an amortization calculator that will help you see where you are on a simple interest loan. Check the box that says "Show Amortization Schedule" and you'll see the principal/interest breakdown for each payment.

If you pay ahead an irregular amount, there's a way to get a general idea of where you are on the loan. Next time you get a statement from the credit union, check your current loan balance. Then look at the amortization schedule to find what loan payment is closest to your current balance. That will give you an idea of how many regular payments are remaining.
 
Hey, that's neat, Kranky. Thanks man! Thanks Jfrag for the banking industry insights. 🙂 New vehicles are great, but the new vehicle payments suck. 😛
 
principal

The easiest thing is just to phone up your bank and get a record of your payments and interest charged, if they provide that service.
 


<< Depends on the type of loan you have on the vehicle... if it is a simple interest loan then yes the extra is going directly to the principle of the note.


<------ works @ a bank😀 >>



simple intrest rules!!!
 
MichaelD, call your Credit Union & find out; in the past, I've done the same thing and unless I asked them to specifically apply the $ towards the principal, my CU applied the extra $ towards future payments (principal & interest).

My CU's reason was that it was easier that way for them & principal pre payment required a little more complex record keeping. After my talk with them, I asked each time for them to apply the $ towards the principal, not just future payments.

Advantages to both ways, and you save on interest both ways...

Gotta go to a funeral🙁
 
Unless it's a rules of 78's loan then yes the amount you pay over your minimum monthly payment will be applied towards your principal balance.

Whenever a payment is received, the funds are first applied to satisfy outstanding interest which has accrued since your last payment, next funds are applied to satisfy outstanding fees (usually late fees) and last but not least the rest is applied towards your principal balance.

Just to give you an idea of how much interest you're paying, call your auto loan customer service and ask them what your per diem is. This is the amount of interest you are paying every day. My per diem was once up to $5 a day on an $8,000 line of credit, that was incentive enough for me to quickly pay it off and close it. That was $150 a month in interest only I was paying to the bank *shudder*.

What I love are those financial calculators which show you how much interest and time you can save by simply paying an extra $50 a month. When I paid off my last car loan, I paid an extra $75 a month which saved me about 4 months off the original term of the loan.

😀
 


<< When I paid off my last car loan, I paid an extra $75 a month which saved me about 4 months off the original term of the loan. >>



That's exactly what I'm trying to do by paying a little extra each month. Allthough at an extra $20/ mo, I'm not making too much leeway. LOL!



<< Actually all your money is going to me and there will be an extra 4 years added to your payment plan. >>



All your interest payments are belong to Yakko! ALL of them! Mwuahahahahah! 😀
 
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