Best way to pay down car loan

[wikiwiki]

We are making $400 payments each month to our car and also have an extra $200 every 2 weeks to go towards it, plus any "extra" we save on not spending on other items we want to put it towards the car (to pay off in a few months)

When is the best time to make the "extra" payment, just whenever we want or at the same time as the regular monthly payment? I've noticed sometimes the interest that is taken out of the payment is higher than at other times. Does it matter, or do they only take so much interest out each month?

[snafu]

I suggest you review your car loan contract to see whether there are any penalties for prepayment of the loan. Look for words like simple interest. Was the loan front loaded or pre computed? If those words appear, use a car loan calculator to work out if there is any advantage to early payout.

[siggy_freud]

Best time to make the extra payment is right after your regular payment. That way you're not paying any extra daily interest that would accrue, since you just paid it via your regular payment.

[Petunia 100]

If you have a simple interest loan, interest accrues daily on the outstanding balance. Therefore, the sooner you reduce the outstanding balance, the sooner you reduce the daily interest, resulting in less interest paid. It is a mathematical certainty.

Put another way: if you are accruing $10 per day in interest, when do you want to make an extra principal payment and reduce the daily interest to $9 per day? Do you want to do that today or next week or next month? If you are trying to reduce the interest you are paying, you want to make the extra payment today.

[ccole]

One of the most common ways to pay down a loan early is to pay additional principal each month. You don't have to pay a lot of extra each month to make a significant difference in your loan pay off time. An additional $50, or even $25 extra principal each month may make a surprising difference. You can save a lot of interest if you pay down the loan early.

[lindsay06]

Pay down as much principal as you can as fast as possible. This will reduce your interest payments drastically.

[wikiwiki]

So I should make one big payment each month rather than sending extra $ over when we can? The payment is $360 and we were making $400 payments ($40 extra to principal) and then $200-$300 extra each month depending on what is available. Should I just pool that and make a $700 payment each month?

[Petunia 100]

So I should make one big payment each month rather than sending extra $ over when we can? The payment is $360 and we were making $400 payments ($40 extra to principal) and then $200-$300 extra each month depending on what is available. Should I just pool that and make a $700 payment each month?

You will save the most interest by prepaying as soon as possible, provided you have a simple interest loan. Do you know if your loan is simple interest?

For the sake of convenience, you may prefer to simply make one payment, even though it will cost a bit more. If your interest rate is low, the difference will be slight.

Also, make certain to indicate you are making an additional principal payment.

[wikiwiki]

The loan is simple interest. I'm assuming they will know that anything I pay over the required amount is principal?

[creditcardfree]

The loan is simple interest. I'm assuming they will know that anything I pay over the required amount is principal?

I would always specify that it is a principal payment. I would make a payment every time you have money available, assuming you aren't penalized for it in your contract. I make a principal payment on our truck loan every pay period (twice a month) and the regular payment is automatically withdrawn from our checking account. Occasionally, I will find more money to send in, and I just do it right then. I do not wait.

Congrats on wanting to pay this off so quickly!

[GenWhyJ]

I paid a $7,000 deposit on my car and I'm paying $115 a week until the rest is paid off over a 4 year period (ending November 2015)

If you want to pay yours off ASAP, be careful they won't charge you a fee for early repayments. I would be charged $30 for each month I paid off early. If this wont affect you, pay as much as your budget enables you toward the car loan.

[grumpter]

Ummmm... what is the interest rate? I thought that would be the first question asked.