Paying extra on car loan at 0%

**Petunia 100** · 01-15-2013, 06:59 PM

If you want to lower your monthly payment, I suggest you save up a lump sum. Contact the lender and tell them if they will recast the loan, you will prepay $ X.

(Recast means they recalculate the monthly payment based on the new lower balance.)

**lhkorn99** · 01-15-2013, 10:27 PM

why not put the extra money in the bank and atleast earn some interest on it?

**cooliemae** · 01-15-2013, 11:27 PM

If the loan is actually a 0% loan for five years, then I would definitely not be putting any extra money towards the principle. I would suggest putting extra money in a savings account and let it start making money for you. Of course this depends on your ability to be disciplined and not use the money for something else. If you can't keep your hands off the money then you're better off just putting the extra towards the principle.

As for the drop in your payment due to the extra money, it may not seem like much now, but it will eventually start dropping fast and you will end up paying the car off earlier than the original terms.

**bjl584** · 01-16-2013, 05:18 AM

Many will say to keep the loan and invest the money elsewhere. I think that you need to evaluate your individual situation. While it makes more sense financially to keep a 0% loan and invest your money elsewhere, there is also something to be said for having that debt off your credit report and for having an extra $390 in your pocket every month. If you have any large financial obligations coming in the next few years, then it may be a better idea to pay off the loan as quickly as possible.

**disneysteve** · 01-16-2013, 06:02 AM

Originally posted by outsicktoday View Post

So I can basically pay and pay but the term will stay the original 60 months and the principal will just drop with the monthly payment?

Yes, that's how loans work. You can't change the term of the loan unless you refinance it, which would be monumentally stupid with a 0% loan. However, if you make extra payments every month, you do change the effective term of the loan because it will be repaid earlier than scheduled. So I'm not really sure what your question is.

I'm a lot more concerned about your overall situation. The fact that you are here asking about how to prepay a 0% loan but also mention that you recently defaulted on a real estate loan makes me wonder what the big picture looks like.

**outsicktoday** · 01-16-2013, 05:33 PM

Originally posted by disneysteve View Post

Yes, that's how loans work. You can't change the term of the loan unless you refinance it, which would be monumentally stupid with a 0% loan. However, if you make extra payments every month, you do change the effective term of the loan because it will be repaid earlier than scheduled. So I'm not really sure what your question is.

I'm a lot more concerned about your overall situation. The fact that you are here asking about how to prepay a 0% loan but also mention that you recently defaulted on a real estate loan makes me wonder what the big picture looks like.

Big picture is fine, I owe a student loan, a mortgage on a house I moved into a couple years ago, and the car loan at 0%. I know I can't OFFICIALLY change the term, but I thought I could cut off a year of overall payments by paying extra a little here and there. I was going to pay ahead and have a few months of no payment cushion in case I needed it or continue paying and do so early. However with this loan for some reason when I pay more it comes off the principal and does not pay ahead, so my payments just drop each month. I get it that it will pay off early anyway, but it does not pay ahead any. Maybe I'm not explaining it correctly.

I let the real estate investment go because it was massively upside down and I was throwing money into a money pit. It's only in my name and it has not hurt my credit much at all since everything else is in good shape. All zeroed out on my credit cards, only owe house, this car loan, and student loans which I am paying multiple payments to every month. So overall picture is just fine and really I have nothing to complain about other than my cash flow each month is a bit cramped due to the large student loan (extra) payments and I say the car note as a possible point of reduction to monthly expenses. Loan has about 3.5 years left on it and I thought making it a little less might help, but I figured this out yesterday:

For every 1000 I pay extra I only save $25 per month on the payment, a $375 payment drops to $350, so to save $100 a month I would have to put in 4,000. It would not let me skip say 10 months of payments, it seems that the payment just gets automatically recalculated over the remaining term of the loan.

**maynard** · 01-16-2013, 05:54 PM

Ive never had a loan where the monthy payment was reduced as months go on. Unless youre talking about the minimum monthly payment on a 0% credit card

**disneysteve** · 01-16-2013, 06:30 PM

Originally posted by outsicktoday View Post

I was going to pay ahead and have a few months of no payment cushion in case I needed it

Have you tried calling the lender? You are having the opposite problem that most people encounter. Usually, with car loans at least, when you send in extra money they tend to apply it toward the next payment rather than toward principal. They do that because it is more advantageous to them and maximizes the interest they collect. You often have to call and specify that you want the extra to go toward principal. Since your loan is at 0%, it shouldn't matter to them either way. Ask them to apply extra payments not to principal but to advance payments.

Originally posted by maynard View Post

Ive never had a loan where the monthy payment was reduced as months go on.

See what I wrote above.

Actually, on my current car loan that's how it is. When I sent in extra, they applied it to the next payment. To be honest, I didn't notice that for a few months so I ended up being several months ahead because I was making the equivalent of about 3 payments per month. I had to call and specify that I wanted the extra to go to principal instead.

**creditcardfree** · 01-16-2013, 06:58 PM

I'm understanding that the OP, wants to prepay the payments for example three months, and then be able to skip three months without any payments at all. I don't think most lenders work this way.

We currently have a loan. Our payment is 329. We do make extra payments, which I always specify to add the additional to pay off the principal balance. I am always reminded that this payment does not satisfy my regular payment of 329. They still expect me to make this payment every month. Of course, the interest portion of our regular payment goes down every month because I am paying extra on the principal.

You need to call the bank to discuss with them. You might lose your great rate, if you don't make on time monthly payments.

**cascade11** · 01-18-2013, 07:51 PM

0% on a loan? I would take foooorrevveeeerrr to pay that off. If you are very disciplined with money, I would pay it off as slowly as possible at a "free" rate.

**snshijuptr** · 01-18-2013, 08:46 PM

If you want a payment cushion, then I recommend creating a special "car payment" savings account where you send all your extra payments. This account can earn a little interest and you will have a car payment emergency fund that you can draw from in the months you don't want to make a car payment from your normal cash flow.

Paying extra on car loan at 0%