Loan Paying Question

[rousie13]

Would it be better to pay like $2000 on my truck right now, plus monthly payments or just put that $2000 in say a 6 month cd or savings account and paying off the truck next summer? Would paying that $2000 now on the truck decrease the amount of interest I had to pay or no? If it won't decrease the amount of interest I pay, I'm going to put the money into something where I earn interest for 6 months or a year.

[DAEDALUS]

It really depends on the actual numbers...what interest rate, how long is the loan, etc. 6-month CDs aren't paying hardly diddly squat, PLUS you have to pay tax on any interest you make. If you want to post or email me the numbers I can tell you exactly the $ differences in your options. In all likelihood you will pay less interest on the loan by putting the $2k down than what you stand to make on a CD.

[rousie13]

I sent you an email with the information you needed. Thanks a lot for the help though. By the way I already have the loan, so this won't be money down on the loan, just paying a hunk of it off.

[gabossie]

Be careful, some loans have a penalty for paying them off early. Kind of insurance for the bank to ensure they get as much money out of you as possible.

[DAEDALUS]

Replied! Besides the pre-payment penalty, most loans allow you to make lump-sum and/or larger monthly payments to reduce the total amount you have to pay off. If they don't, run!

Edit:It's incredible how much you can save by paying loans off early, especially long-term loans like mortgages. Add a decent amount every month to your mortgage, and you can easily save enough off the entire loan to pay for a new sportscar! Just the cost of money at work.

[szh]

It's incredible how much you can save by paying loans off early, especially long-term loans like mortgages. Add a decent amount every month to your mortgage, and you can easily save enough off the entire loan to pay for a new sportscar! Just the cost of money at work.

Absolutely true!! We have a fifteen year mortgage on our house, and just with a simple extra payment of principal our mortgage, we reduced that to a ten year pay-off, significantly lower total interest, etc. Well worth doing!

Another (but not as good) technique is to pay half every two weeks rather than every month. Then, you effectively make "one extra month" payment in the year and save time and interest.

Z

[rousie13]

Thanks for the reply. I am making the first payment on the loan on the 10th of this month, so there was some confusion there. I just sold my car so I have extra money from that that I was going to pay on my truck(the $2000). And I plan on paying off the truck after the 18 months so I don't have an early payoff fee tacked onto my loan.

[w1ngzer0]

early pay off fee? wtf............. your getting jiped...

[jdmfreak]

Yea man that s*** shoulnt happen.

Ive been trying to get my dad to pay off his loans early, but he'd rather have the $ now than later.

[Cold_Zero]

A few things.1. You need to find out from your lender how payments are applied to a loan balance. Typically our company's policy (not car loans) is to have fees paid first, then accrued interest then principal. Anything after that is applied to the outstanding principle. What confuses people is the fact that making extra payments does not advance your payment counters so that you can skip next month's payment. To do this, you typically have to indicate on the payment that you are making September's and October's payment and it will be applied as such.

2. Typically with car loans there is no prepayment penalty. Most car loans are simple interest car loans and you are not charged when you pay off early, consult your lender or contract. 3. Paying ahead will help you in the long run as it will cut the amount of interest you pay during the life of the loan. After a big one lump payment you will need to call your lender and ask them to re-disclose (in the student loan industry) or re-adjust your monthly payment amount (MPA). There are certain events in the life of the loan that will trigger this, but you may get your next month's payment with the same MPA.

4. As far as what to do with your extra money. I would take a look at your finances and determine what high interest debt and low interest debt you have. Student loans, car loans and mortgages are typically considered good debt with your FICO score and lenders and typically you will want to pay off on those types of loans last. I would take a look at the debt you have and attempt to apply the money that gets you to where you want to be in the future. Nothing is more nagging than paying on high interest debt for years and years. Make sure that the investment into a CD outweights the cost of the car loan, specifically accrued interest.

bud

[Repo Man]

Good advice. Let us know how it all turns out.

Andy