topic Financing Car Situation. Advice Please in Community Chat

Financing Car Situation. Advice Please

bonnielu — Tue, 08 May 2018 02:26:51 GMT

Bought car. Financed it through car dealership. Attempting to pay up quickly (hopefully). Seems payment is divided by principle and interest. When I pay, the payment does not go to principle entirely. Something looked really strange in the arrangement so I called thinking ALL WAS WELL. Turns out that I can have a choice (one I was never told up front) to designate the entire payment go directly to principle. IN any case I plan to pay the total within a year (if possible) I have been saving furiously.

Those of you who have financed a car. Have do you have any advice. Should I just pay principle (have to call on the phone after the payment reaches them) or should I leave it all alone and let it run its course. Very confusing. I called three representatives and they are not all that helpful.

Re: Financing Car Situation. Advice Please

patbz — Tue, 08 May 2018 02:34:08 GMT

In general the faster you pay off principle the less interest you will owe (therefore the total cost would be less).

Re: Financing Car Situation. Advice Please

pigletsmom — Tue, 08 May 2018 02:56:17 GMT

Yes you start paying interest right away. Any time I made an extra payment I would make sure to designate it as a principal payment.

Back in the day when I worked in a bank and people actually came in to make payments we would have to mark it as principal. If you do it online or electronically you probably do need to call in to make sure that happens. I would do it to make sure the principal is being reduced and that any extra money isn't going to interest.

Re: Financing Car Situation. Advice Please

game-on — Tue, 08 May 2018 03:25:07 GMT

Read your contract; go talk to your financier. I have seen contracts where a person is penalized if they try to pay it off early. Hopefully you didnt get a contract like that.

Re: Financing Car Situation. Advice Please

chrystaltree — Tue, 08 May 2018 04:18:20 GMT

You should have the extra payment applied to the principal because that reduces your interest. But be careful because sometimes there is penalty for paying early. I imagine you would have to call to make such a payment and then hope the transaction went through properly. Personally, I'd just leave it alone and make my payments.

Re: Financing Car Situation. Advice Please

Nightowlz — Tue, 08 May 2018 04:47:21 GMT

The loan on my car was for 7 yrs. I paid it in about 4 yrs. They took out a half payment each paycheck including months you get paid 3 times. When I wanted to pay extra I did it online the day after the 2nd half of payment was deducted so it went to principle except a small amount since interest is accrued daily. I could see the majority went to principle right after the transaction. I asked the credit union what was the best way for me to do this online & that's what they told me to do.

Re: Financing Car Situation. Advice Please

ciao_bella — Tue, 08 May 2018 11:34:56 GMT

As many have already stated, pay down on principle as soon as possible.

Just as a side note; I generally look or wait for the car manufacturer to promote a 0% interest rate.

Re: Financing Car Situation. Advice Please

CrazyDaisy — Tue, 08 May 2018 12:07:05 GMT

In most cases you will need to make your monthly payment first (principal and interest). Depending on the type of loan anything additional can be directed to principal or toward your next months payment. I have a loan that after I became 3 payments ahead, then I can direct all the money entirely to principal. Suggest you call your lender and have them go over your terms with you till you understand exactly the type of loan you have.

Re: Financing Car Situation. Advice Please

bonnielu — Tue, 08 May 2018 12:19:19 GMT

@pigletsmom Main question. If I say it is going to principle as I want to do. At the end... everything paid... do I pay less over all? I have never been aware of my choices. Seems all kinds of dishonest... This was a BIG loan. If it does not matter I will leave it alone.

It is a Toyota so I cannot walk in and pay. And I cannot use a credit card. Toyota Credit.

I am usually pretty financially atune but this time I was dazzled by the car of my dreams. It is very smart LOL. Me not so.

Re: Financing Car Situation. Advice Please

CrazyDaisy — Tue, 08 May 2018 12:46:34 GMT

You pay interest on the money you owe, yes they want that money first. So payments will cover your interest first then the rest is applied to principal. Because you were given a payment schedule that interest/principal split will not change as long as you have a loan outstanding. Should you make additional payments and want that applied to the principal of the loan, you will pay less interest and an adjustment will be made when the loan is paid off. There are many different types of loans which have stipulations as to early pay off or additional payments directly to principal, you need to know what your terms are.

Re: Financing Car Situation. Advice Please

Allegheny — Tue, 08 May 2018 13:11:12 GMT

I have purchased many cars over the years. Some cash, others financed thru my credit union. I have never heard of making your regular monthly payment and have it going strictly to the principal. But who knows what they do now.

I always paid extra on my monthy payment and any dollars above the regular payment was applied to the principal, but then again I was financing with a credit union.

That was until I purchased a Nissan and financed thru them. I did get 0% financing. When I made my monthly payment, if I sent in more dollars they applied it to the next month's payment, then my payment schedule got screwed up. IE: If monthly payment was $400 and I sent $600 the next month's payment was reduced to $200. Very frustrating. There was a way to make additional monthly payments, but not on line. A separate check had to be sent in to a different address requesting it be applied.

Re: Financing Car Situation. Advice Please

beckyb1012 — Tue, 08 May 2018 13:21:01 GMT

@ciao_bella wrote:
As many have already stated, pay down on principle as soon as possible.

Just as a side note; I generally look or wait for the car manufacturer to promote a 0% interest rate.

Best feeling getting that amount. I got mine in January of this year for the 0% and after driving my last car for fifteen years that was a big selling point for me to bite the bullet and get a new SUV @ciao_bella

Re: Financing Car Situation. Advice Please

WenGirl42 — Tue, 08 May 2018 13:24:13 GMT

Mathematically, if you call for every extra payment and have it applied to the principal, you will accrue less interest and end up paying less overall. But practically, if you're going to pay off the whole thing in the next year, it won't make enough of a difference to be worth the time and effort. If you want to figure out how much the difference would be, there are loan payoff calculators online you can use.

Re: Financing Car Situation. Advice Please

patbz — Tue, 08 May 2018 13:47:08 GMT

Check with your bank or credit union and maybe you can transfer the loan (if you get better, more understandable terms).

Re: Financing Car Situation. Advice Please

pigletsmom — Tue, 08 May 2018 13:49:04 GMT

@bonnielu wrote:
@pigletsmom Main question. If I say it is going to principle as I want to do. At the end... everything paid... do I pay less over all? I have never been aware of my choices. Seems all kinds of dishonest... This was a BIG loan. If it does not matter I will leave it alone.

It is a Toyota so I cannot walk in and pay. And I cannot use a credit card. Toyota Credit.

I am usually pretty financially atune but this time I was dazzled by the car of my dreams. It is very smart LOL. Me not so.

@bonnielu Yes if you make extra principal payments you will pay less interest in the long run. The faster you pay it off the better. But basically your regular monthly payment is interest and principal because they rightfully want to make something off of you.

I would make the regular payment each month and then a separate principal payment and ask Toyota credit how you going about making sure that happens. I just want to make sure if you have say a 5 year loan and you pay it in 1 year you don't end up paying the interest for 5.

In other words if your monthly payment is $400 for 60 months total is 24000 which includes interest. . You DONT want to think oh I'll just give them $2000 a month and be done in a year because your interest would be less and would lower the 24000 total.

So dump money on the principal while making the mothly payment as well. Keep watching as the amount goes down and when you think you have enough to payoff the balance get a payoff amount from them and send it on in.

Re: Financing Car Situation. Advice Please

novamc1 — Tue, 08 May 2018 14:02:22 GMT

I've never needed a car loan, but it has always been my understanding that the worst place to finance a car is through a car dealership. Far better to deal with a bank or credit union.

Reportedly, dealers make more money off of the car loans than they do by selling cars, and I've always been pressured upfront as to how I'm going to pay for the car. They have all kinds of financing tricks to make sure they maximize their proceeds on the loan.

Seems like a good idea to keep them guessing until I've made a final decision to purchase.

The salesperson's goal is to sign you up for a loan. My goal is to get the car for the lowest price. I don't want the salesperson to know that I'm about to rob him of some of his commission--and the dealership of some interest payments-- by using some other money source to pay for the car.

Re: Financing Car Situation. Advice Please

151949 — Tue, 08 May 2018 14:23:11 GMT

Any loan , car, mortgage , whatever, they take the interest out first. So the first about 1/3 of the loan is primarily interest paid, second 1/3 is a more equal division between interest & principle and the final 1/3 is mostly principle. This way, if you pay off the loan early they get their profit anyway. I very seriously doubt they would allow you to make principle only payments on a car loan. I think you misunderstood. They only make money on your interest payments. However, any extra you are paying can be applied only to principle.

Re: Financing Car Situation. Advice Please

novamc1 — Tue, 08 May 2018 14:47:01 GMT

Principal vs. principle..........

Principal, which refers to loans and mortgages, is the percentage of a monthly payment that reduces the amount owed in a loan or mortgage, without interest.

An honest borrower eventually pays off the total principal as a matter of moral and legal "principle".

It's true that it saves significant interest money over the life of the loan to get the principal paid down as soon as possible..It's also true that whether it's a car loan or a home mortgage, you have to stay on top of making sure the lender applies any early principal payments correctly and fairly.

This is not always easy but worth pursuing relentlessly with the lender's staff members who handle these things.

Early payoff penalties are probably rare these days in home mortgages, but I don't know whether they exist in car loans. Pays to find out what the loan documents say.

Re: Financing Car Situation. Advice Please

Tinkrbl44 — Tue, 08 May 2018 15:23:36 GMT

@bonnielu wrote:
Bought car. Financed it through car dealership. Attempting to pay up quickly (hopefully). Seems payment is divided by principle and interest. When I pay, the payment does not go to principle entirely. Something looked really strange in the arrangement so I called thinking ALL WAS WELL. Turns out that I can have a choice (one I was never told up front) to designate the entire payment go directly to principle. IN any case I plan to pay the total within a year (if possible) I have been saving furiously.

Those of you who have financed a car. Have do you have any advice. Should I just pay principle (have to call on the phone after the payment reaches them) or should I leave it all alone and let it run its course. Very confusing. I called three representatives and they are not all that helpful.

@bonnielu

Sorry, but if you plan to finance something ... anything ..... .... home, car, whatever .... it's up to YOU to get up to speed on different financing options. If you can't be bothered to do so, it's really not their fault, it's yours. You can't expect any financier to anticipate what questions you might have a year from now.

Not sure why you have suddenly decided to pay this off asap .... why not just save in advance if you want to pay cash? (JMO) Nevertheless, financing is a convenience when making large purchaces, and can be tax write off in some instances.

Since interest rates and options vary dramatically, you need to do your research in advance. Next time, consider going to your bank or credit union and get pre-qualified in advance of an automobile purchase. Then, there'll be no surprises.

Re: Financing Car Situation. Advice Please

Tinkrbl44 — Tue, 08 May 2018 15:27:19 GMT

@novamc1 wrote:
I've never needed a car loan, but it has always been my understanding that the worst place to finance a car is through a car dealership. Far better to deal with a bank or credit union.

Reportedly, dealers make more money off of the car loans than they do by selling cars, and I've always been pressured upfront as to how I'm going to pay for the car. They have all kinds of financing tricks to make sure they maximize their proceeds on the loan.

Seems like a good idea to keep them guessing until I've made a final decision to purchase.

The salesperson's goal is to sign you up for a loan. My goal is to get the car for the lowest price. I don't want the salesperson to know that I'm about to rob him of some of his commission--and the dealership of some interest payments-- by using some other money source to pay for the car.

@novamc1

Absolutely correct ..... never finance with a dealership UNLESS it's a 0% interest financing promotion. Never!!