The g/f has a brand new car loan that she's getting ready to make the first payment on. It's a 48 month loan, but she'll be paying it off in a year or so. Small loan, high income, etc. Anyway...
Apparently the bank requires her to send a separate check to a different address if she wants to make payments directly to principal. Excess payments otherwise go to pre-payment, ie pushing the due date of the next payment out beyond a month.
The question:
Assuming she continues to pay it off at this accelerated rate there is no financial advantage to either method... Correct? There is no pre-payment penalty, so total interest for each cycle (or between each payment) will be daily rate * principal * days in cycle.
My gut feeling says the end cost will be identical, & she doesn't need to bother with the 2nd check to principal nonsense. Unfortunately I don't know an easy way to prove it.
Viper GTS
Apparently the bank requires her to send a separate check to a different address if she wants to make payments directly to principal. Excess payments otherwise go to pre-payment, ie pushing the due date of the next payment out beyond a month.
The question:
Assuming she continues to pay it off at this accelerated rate there is no financial advantage to either method... Correct? There is no pre-payment penalty, so total interest for each cycle (or between each payment) will be daily rate * principal * days in cycle.
My gut feeling says the end cost will be identical, & she doesn't need to bother with the 2nd check to principal nonsense. Unfortunately I don't know an easy way to prove it.
Viper GTS
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