Qusetion About Car Payments....

[Englishe30]

I financed my si back in April. My payments are $359.00 a month. Heres the question. I pay $400 a month, is this the best thing to do or should I send the extra money seperate? Am I doing the right thing in sending the $400 all together in one payment?

[carlo_amacio]

I dont think adding little amounts will save you money because interest will just eat it up. To make a difference you would have to add about $100 per payment

[illusionstwice]

[kenchan]

i would just save it up and do an early buyout.

[Englishe30]

wow that sucks...

[Englishe30]

Originally Posted by kenchan

i would just save it up and do an early buyout.

please explain
I don't know much about this kind of stuff..

[kenchan]

unless your bank has early buyout penalties, you can buyout early without
paying the full 359x ___ months total. :) bascially you dont need to
pay the interest you would owe if you paid the full xx months.

[Civic Pride]

This is what i did to save money, i finance my car for 4 years by hondafinance, and my monthly payments where of 321 a month with a 7k down payments, i finance 13k and in the past year i paid only my monthly payments, and last month i finish paying for the car by sendng them all the money, this way i save the interest 3 years, so i save about 2k by paying now instead of doing the monthly payments in the 4 years.

All i can tell you is to save some money and then make a big payment to reduce your interest.

[AllShowNoGo]

are u interested in saving $$ or building credit?

saving $$ = what everyone else said

building credit = banks like to see steadiness/longevity, but def. make above the minimum payments.

[kenchan]

building credit is good, but if you pay your credit cards in full all the time
that'll give you that extra edge kinda almost automatically from wat i
see.

[alpha]

Originally Posted by carlo_amacio

I dont think adding little amounts will save you money because interest will just eat it up. To make a difference you would have to add about $100 per payment

When you pay more than is due every month, the extra amount goes off to pay off the principal balance of the loan. The amount of interest you pay over the course of the entire term of the loan is based off of how much principal you have left in the loan. So, every month that you owe principal to the loan is every month that you'll need to pay interest. Putting the extra amount in every month will reduce the term of the loan and therefore decrease the amount of interest you are paying since you'll have paid off the entire principal balance earlier than originally anticipated.

This is why banks used to have "prepayment penalties" because banks loan you money to buy your car with a fixed % APR. If you say you're borrowing for 36 months, they want you to owe them for the entire 36 months because that is how they will maximize the return in interest of the loan.

The only thing you have to look for is like a checkbox that says "apply extra toward principal" or if paying extra seems to 'extend' your due date as this is a sign that the extra will be considered a part of your next payment.

I just did a quick google search and found this java-based prepayment calculator. Enter in your numbers and see how much money you'll save if you pay extra:
http://www.autopaymentcalculators.com/loan_payoff.html

Bottomline: for any loans that you have that do not have prepayment penalties (most of loans nowadays don't but doesn't hurt to ask), you will save money and pay less interest over the loan term if you put in extra every month.

[DrkClouD]

If u financed thro american honda then it tells u on the bill anything over ur monthly due goes toward ur principal. extra $50 every payment for 48mos = $2400 that goes to ur principal.

[Englishe30]

Thanks for the help guys I'll check my payment book for the apply to principal check box...What if its not there should I put a note on the payment saying apply extra to principal?

[alpha]

Originally Posted by Englishe30

Thanks for the help guys I'll check my payment book for the apply to principal check box...What if its not there should I put a note on the payment saying apply extra to principal?

If it's not there than I'd say more than likely, extra will be put toward the principal. If you want to be sure, call the number on your payment book and ask them.

[kelmar]

Originally Posted by alpha

If it's not there than I'd say more than likely, extra will be put toward the principal. If you want to be sure, call the number on your payment book and ask them.

Best advice.

[kenchan]

one thing to note, even if you did pay more every month they get the
money they can spend (more options for them) while you still dont have
the title to the car (no benefit for you while you still owe).

you should just save your extra money in your bank and keep it under your
control. you never know wat might come up in life...

[alpha]

Originally Posted by kenchan

one thing to note, even if you did pay more every month they get the
money they can spend (more options for them) while you still dont have
the title to the car (no benefit for you while you still owe).

When you finance for a car or house, you already have the title. If I find the Certificate of Title of my car outside, it will have my name on it even though I am still paying it off. If I look at the title for my condo, it has my name on it even though I have a mortgage.

While you still owe for the car, the benefit is that you can use your car anyway that you see fit. This includes driving yourself to work and even taking an aluminum bat to it - no one will care because it is your car. It's just that if you default on your loan, the loan originator will seize/foreclose the property in question and perhaps even go after your other assets if they find that they won't be able to recover the remaining balance on your loan.

Originally Posted by kenchan

you should just save your extra money in your bank and keep it under your
control. you never know wat might come up in life...

If you know for a fact that you can invest your money somewhere with a higher interest rate than your car loan, you should definitely put as much as you possibly can into the investment and pay the minimum on your loan every month.

You should not let large chunks of money sit in a checking account for long periods of time unless you know you'll be using it soon. Hell, banks now have interest checking accounts although the rate of return on these are miniscule. I'd recommend looking into short/long-term CD, money market, 401k, Roth IRA, even one of those high-yield savings accounts. If you have some extra cash you can risk, open an etrade account and starting investing small amounts of money.

(can you tell I work in finance? )

ps. I highly recommend those who have questions about this to try the java applet on the link I posted a few replies back. It will help you calculate how much money you can save and how quicker you'll pay off the entire loan if you pay $xxx extra per month.