The interest must be accumulating at a faster rate than I can pay it down, as the car loan was approximately $30,000 at a rate of 7% interest. I just checked with the bank, and after making 7 months of regular payments ($650) the balance owing is almost $33,000.
How is this possible?
If the interest on a loan accumlates at a faster rate than it is being paid down, how will it ever been paid?
Thanks...
2006-12-28 04:42:36 · 12 answers · asked by lil 2 in Business & Finance ➔ Personal Finance
The answer of why your balance is larger is accrued interest. Most loan officers will not tell you that when you take a loan it will start the day you sign the papers. Usually your first payment is not due until 30 to 45 days later. From that point when you make the first payment your actual "starting balance" is much larger. when you do start making payments accrued interest is always paid first before anything to principal. You are playing the catch up game for most of those first payments.
Another factor depends on how many days pass between your payments. When you signed the loan contract, you agreed to pay equal installments every 30 days. If your payment is received more than 30 days than the previous payment (even if by the due date) you are paying more interest out of your assigned payment. If you took out the loan insurance or you are being assessed late fees those are paid first before principal too. The key is to try to pay on the same day of the month (every 30 days).
2006-12-28 05:31:46 · answer #1 · answered by AL 2 · 0⤊ 0⤋
If the interest is accumulating more than you're paying it down, then the only way to pay it down is to pay more. Your statement should show how much of the payment is interest and how much principle. Just make sure you start paying the minimum to cover all of the interest and if possible some on the principle, too, even if it's only a few dollars some months.
You didn't say what kind of loan this is, second mortgage, auto, personal, or something else, but your finance documents should outline all of the details for the loan and interest. If they don't, or you're having a hard time figuring it out, just call the finance company and speak to a loan representative. They'll be able to help you sort it out.
2006-12-28 04:51:44 · answer #2 · answered by Katasha 3 · 0⤊ 0⤋
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2006-12-28 05:08:27 · answer #3 · answered by Anonymous · 2⤊ 0⤋
Yeah...It's a little thing they call interest on the loan...Depends on the interest rate you got the loan for, and how much the payments you are making back to the loaner are...at 7%, as you mentioned, something doesn't sound right...On a $30,000 loan, the payments you are making should be making a significant dent in your loan debt...I would talk to a financial planner, or your accountant or something...
2006-12-28 04:53:36 · answer #4 · answered by Terry C. 7 · 0⤊ 0⤋
With car loans, the interest is front loaded. That means in the beginning of the loan, your payments are only going towards interest, so you are not paying down the balance at all.
2006-12-28 04:46:23 · answer #5 · answered by jseah114 6 · 0⤊ 0⤋
You should talk to the bank and see if you can refinance this loan and/or increase your payments. If they can't give you a good deal talk to another bank. If you financed through the dealer who sold you the car it is very common for them to screw you over on the financing. How long is this loan supposed to be for anyway? Many car loans are 5 years...
2006-12-28 06:39:52 · answer #6 · answered by gafpromise 5 · 0⤊ 0⤋
It is possible. If your payments don't cover the interest costs, then your principle will not be paid off and you might owe money on the loan interest.
2006-12-28 04:45:55 · answer #7 · answered by xfilerguy 2 · 0⤊ 0⤋
Doing some calculations on the info you provided it does not seem possible to get a higher balance than you started with.
Either you have left out some key bits of info or your bank has made a mistake. Check with them.
2006-12-28 05:01:28 · answer #8 · answered by glibby3 2 · 1⤊ 0⤋
Either you are misinformed about the loan info, or the bank has made an error. Call the bank and ask some questions.
2006-12-28 04:46:10 · answer #9 · answered by jim 6 · 1⤊ 0⤋
I too had trouble with my car loans and I decided to get a free quote online from http://linkachi.com/?upe . Worked out pretty well for me and I found a good reliable person who contacted me over the phone.
-jon
2006-12-31 20:05:36 · answer #10 · answered by Anonymous · 0⤊ 0⤋