Why is it that when I send extra on my car payment, my payment gets lowered instead of the principal???

Question

It seems that the extra money I pay on my car payment every month reduces the payment instead of the principal? Why does this happen? Is it a good thing or a bad thing. Does the payment stay lowered until end of the loan term? TIA

Answer 1

Because the finance company is screwing you!!

They are paying the extra you send them on the interest. You need to either send an extra check with instructions to apply the payment onto the principal of your car note or you need to specify what amount goes onto the currently due car payment and that the extra (and give them the amount) goes towards the principle.

The way it is happening now is a bad thing because you will continue to pay even when you think you have paid enough to have paid the car off.

My son called the finance company to find out what the payoff was on his car. They told him and he sent the check for the entire amount to them. He made no notes or specifications on the payment and they applied it to his account but, did not pay off his car. Five years later he started getting past due notes from the finance company. He still owed several months of accumulated interest and a good amount on the principle. They used the money to pay his interest and when it was more than was due at the time they paid the interest ahead of time leaving the principle still due.

They are screwing you!! Call them and see if the money you have already paid can be put on the principle where it needs to go to pay the loan off faster.

Paying extra is always a good idea, you just have to tell them what to do with the money so it goes where you want it to go.

Good luck.

Answer 2

It is a way for finance companies to try to get more money out of you.

When you make an extra payment or a larger payment they apply that extra amount to the next regular scheduled payment. Sometimes the extra money is more than the payment so they apply the leftover to the following payment. This can keep happening until you actually get many many payments ahead. So the monthly bill will say you don't owe anything for that month. What they are hoping is that you won't make a payment and then finally make the regular payment during the month after that. When this happens they make the interest that you would have paid them if you made all the payments on a regular schedule. If you get real far ahead on the payments and then don't pay anything, (because they say $0 is due), for months and months they will keep charging interest every month even is you don't owe a payment that month. You can see your balance go up every month that you don't make a payment. In the long run you end up paying them the same amount. The best thing to do is ALWAYS pay the minimum, pay extra if you can and even if they say nothing is due this month - make a regular payment anyway. You will eventually pay the total off ahead of schedule and save yourself a lot of money.

Answer 3

I would look at your car purchase contract to make sure what happens to any prepayment money you put on the car. If the extra payment just lowers the payment amount that would seem like they are keeping the term or the number of payments the same. I.E. if the loan is for say 60 months total, it sounds like you would still have 60 months of payments. I would call the company and ask them how much principal you owe on the car and how many payments are left. Subtract the number of payments you have already made on the car from the original contract amount and see if they match the figure the company gave you. If so, they probably have only subtracted from the interest you are going to pay on the loan. Ask how prepayments are applied to the loan and make sure they don't charge prepayment penalties.

Answer 4

I used to work as a consumer loan officer for a bank and did auto loans quite frequently. It depeneds on how your loan contract is termed and worded. But it sounds as if all your
extra money is being applied to the next months payment thus reducing it. The next time you want to pay extra money contact the bank and tell them you want to make a "direct payment to principal" that way it will be applied directly. A lot of times extra moeny paid on Loans apply it to the next month as a credit by "default" as the loan terms stipulate.

Answer 5

tell them instead of paying extra month to month you want to apply a split amount towards both the month's fee and the principal that way both will go down. and you want it in writing before the following month's due payment. you're doing right by paying extra and it definately helps in the long run to pay down that principal.

* another thing pay only the month's exact payment (from that extra money) and the principal/interest amount each month. only ask how much is the principal and will it be exact month to month.

Answer 6

The principal should go lower with the extra payment. If not call them and get it corrected.The payments will stay the same having less interest and less principal.Keep all statements in a shoe box and if they screw up call your attorney.If your loan is a variable rate the payments will change after the yearly evaluation.

Answer 7

The next time you send in extra money, specify it is to be placed against the principle. When they lower your payment,,you are still making the 36,48, or 60 payments, and they are earning more interest.

You may want to check the contract you signed, there may be some kind of prepayment penalty included.

Answer 8

relies upon on the corporate you deliver it to. generally any extra beneficial volume is utilized in direction of the central. this would not decrease the activity, it lowers the quantity of activity you pay. generally what's going to take place is your money stay an identical and the quantity of central will boost at the same time as the quantity of activity decreases till the central is paid off. pay attention of any pre-fee expenditures which would be linked with any loans. those form of clauses interior the non-public loan settlement insure that the loaning company gets there money.

Answer 9

interest on the loan