Paying extra but not on Principle

**Fast_Eddie26** · 12-03-2012, 09:09 AM

Originally posted by usbp456 View Post

Hello,

I have a question on how my car loan works. My car loan is for 48months with monthly payments of about $582. I had always thought that since I was paying more per month my principle was going down, which is not the case but actually lowers my monthly payment for next month.

For example if I pay $600 for my November payment, my December payment will be $564 because I had paid $18 extra in November. If this is how they do it how or where is my money going? I thought it was suppose to go to principle. Can you explain how this works as Im confused.

How am I suppose to pay it off sooner if they dont apply the extra to principle but rather my next months payment.

You usually have to specify you want the extra payment to go to the principal. There might be a checkbox you need to click or call them and specify how you want your payment to be distributed.

**disneysteve** · 12-03-2012, 09:11 AM

Originally posted by usbp456 View Post

Hello,

I have a question on how my car loan works. My car loan is for 48months with monthly payments of about $582. I had always thought that since I was paying more per month my principle was going down, which is not the case but actually lowers my monthly payment for next month.

For example if I pay $600 for my November payment, my December payment will be $564 because I had paid $18 extra in November. If this is how they do it how or where is my money going? I thought it was suppose to go to principle. Can you explain how this works as Im confused.

How am I suppose to pay it off sooner if they dont apply the extra to principle but rather my next months payment.

This is common for car loans. They just count extra money as additional payments. You'll pay the loan off sooner but still pay the same total amount this way. What you need to do is call them and ask how you go about making extra principal payments.

**siggy_freud** · 12-03-2012, 09:55 AM

As mentioned, you have to be specific about how you want the money applied. Follow up with the lender too. On two occasions with OnPoint, I followed their instructions to the T, and they still applied it to future payments. After a few phone calls it was corrected, but it still very much irked me. I'd rather they assume its to principle and we have to specify if it's an advanced payment, but in those circumstances the lending institutions would lose a bit of money.

**Bob B.** · 12-03-2012, 11:11 AM

Originally posted by siggy_freud View Post

I'd rather they assume its to principle and we have to specify if it's an advanced payment, but in those circumstances the lending institutions would lose a bit of money.

Right. The financial institution wants to continue receiving money (interest) over the full 48 months, even if it is a bit less than what they originally agreed to. This is just how credit cards do it, too.

I'm sure they reduce your total principal owed each time you send in extra payment, but their default is to reduce your payment each month. That (in their mind) hopefully keeps you making payments over 48 months, and keeps their interest income flowing in over 48 months.

What I did in a similar situation is call and find out what my total principal owed was (after I made an extra payment, and they reduced the amount owed the next month), and found an on-line amortization schedule. Mortgage/Loan Calculator with Amortization Schedule I plugged in principal, interest rate, and MY desired payoff date. I copied the results and pasted it into a spread sheet. If I sped up payments again, I just did the whole process over again. Call them periodically, and make sure their principal balance matches yours.

You should know the date when you should be done paying. Hopefully their calculations match yours (they should).

Hopefully I explained myself clearly enough. If not, let me know, and I will try to clarify again.

Paying extra but not on Principle