Financing Car Situation. Advice Please - Page 3

Lipstickdiva · ‎03-10-2010

I've also never heard of the option of applying your entire payment to the principal only. If your loan has interest being charged, somewhere down the line the bank is going to want that interest. When do you pay that? I don't get it.

My car had 0% interest when I financed it. I made more than the regulary monthly payments and obviously never had to worry about where the extra would be applied.

My DH's car had a small interest rate. I also overpaid on that every month. I was told that any money they rec'd over and above my normal payment would automatically be applied to the principal.

That is something you need to find out. Even with our mortgage, I never had to tell them to apply extra to the principal. Per the terms of our loan document, extra money automatically went to the principal. You also need to make sure there is no prepayment penalty, as others have said.

It is also NOT true that you should never finance through a dealership. My sister was a finance manager with a dealership for 15+ years. Dealerships have "floor plans" with certain banks which means those banks get a lot of business from the dealership and therefore offer better plans to potential customers. However, it always pays to look around and see where you can get the best rate. When DH financed his car, the interest rate through the bank the dealership used was better than I could find anywhere, including our local credit union. However, many moons ago when we bought our Harley, we obtained the loan through the credit union because the rate was much better than through the dealership.

Helen852 · ‎03-11-2010

I retired from an auto finance company. People would make a large payment and what that automatically did was push the payments out. Most of the time when it was discovered, we would contact the customer to inquire what their intent was, to pay ahead or apply to principle. If it was to be applied to the principle, we would do that and then readjust the length of the loan to reflect such there were also times when the customer would call us and advise us to their leave it the way it was or to readjust the loan.

One other thing to consider when financing an auto, rebates. Often times, you have to finance with the financial arm of the company in order to qualify for the rebates. You can finance and then pay it off in a few months, used to be if customer paid the loan off before 3 months, the dealerships would be penalized and lose their reserve (aka commission). And the dealers can only mark up the APR by 3%.

Helen852