How to pay a loan off quicker?

Question

I asked a question earlier about how to pay a loan off earlier. I think some of you misunderstood my question. I am not in debt over my head and I have money set aside for emergencies. I only wanted to know the best way to get a loan paid off quicker. By making regular monthly payments with a couple extra payments a year, or by just making payments for about double the payment or what. My loan is $350.00 and I have about $700.00 a month to put on it. How is the best way to apply it? Do I need to make payments ahead, such as paying the $350.00 ahead of time, or do I need to pay $700.00 a month, or just make the regular payment and send in extra money here and there? Hope this is not too complicated. Anyway, thanks for the answers everyone!

Answer 1

Some lenders will have a service fee for making "extra" payments. Instead increase your payment amount by 2 payments per year (or more if you can afford it). If you can afford $700 per month that is up to you. But I do not recommend making extra payments. Make sure you note that any extra is to go towards the principal.

$350 times 14 = $4,900
$4,900 divided by 12 = $408.33

So pay $408.33 per month. More if you can. The sooner you pay more, the lower your principle, but they usually go by the due date to say when it was received, so paying early in the month does not help. Just don't be late. You can't do a double payment then skip a month.

Answer 2

Pay however much you wish (over and above the minimum payment of course) by the payment due date. Enclose a note telling the lender to apply the excess to principal. That's ALL there is to it.

If it's a mortgage payment and you don't include the note many lenders will dump the excess into your escrow account where it will do you no good.

Don't depend upon the Memo line on the check! Enclose a written note with the check to ensure that it gets noticed!

FYI, extra payments are NEVER applied to interest as some others have stated. Loans don't work that way.

Do keep in mind that paying a double payment this month does not excuse you from the regular payment next month. That's about the only way that folks get into trouble with doubling up on payments.

Answer 3

To pay off the loan faster, make your payments higher.
Just because the monthly payments are $350, it doesn't mean that's all you can pay. You can pay $351, $700, even $1000 if you wanted. "Monthly Payment" is just another way of saying minimum payment.

Plus, a significant portion of the $350 is probably interest. Anything that you pay over $350 will help pay off the principle.
If you pay $700 per month on a loan that has payments of $350 per month, it will take less than half the time to pay off the loan.


By the way people, I don't know about you, but I've never seen a mortgage payment of $350/month.
This is probably for a car loan or something.

Answer 4

It depend on at least two things..what you can afford and whether the loan company will accept prepayment.

I do not understand your math.

You said:
"My loan is $350.00 and I have about $700.00 a month to put on it. How is the best way to apply it?"
Is it $3,500, $35,000, $350,000 or some other amount?

In paying off the loan you do not want to undergo undue difficulty but at the same time you want to get rid of it and wind up paying less interest.

If you are allowed to prepay then I would suggest that you consider $700.00 a month if that will decrease the total interest that you owe. If you are not allowed to prepay or they will not give you a break in the total interest then I suggest that you place the money into a money market fund or a CD (watch the length of time on the CD).

It is good to hear that you are in a good enough financial position to repay the loan and prepay it as well.

Good luck.

Answer 5

The fastest way to pay of your loan with no change to your current lifestyle is to play the same game the banks do. Since interest is calculated on a daily basis, you should put one paycheck into the loan and then use credit cards or any financial vehicle which will allow you a 30 day grace period before you get charged interest. You then use your second paycheck to pay that off. A typical 30yr mortgage gets paid off in 8-12 years. See this website for an example:
http://www.mortgage-accelerator.com/?jratliff

Regards

Answer 6

Dear Judy D,

I understand you clearly. I've done it before with the Finance Institution. They agreed on my suggestion. I was having loan for buying a house. I've completed the loan. Now the house is mine. I'm free now.

Discuss with the Finance Institution. The $350.00 you want to pay the original amount/basic amount apart from paying the $350.00 monthly installment for the principle amount.. Normally the Finance agree to accept this mode of payment. On top of that, at any time you have extra money, e.g $1000.00., just pay the principle loan apart from the monthly installment of $350.00. You'll gaining of lower interest and you'll finish your term of loan faster.

Answer 7

I didn't see your first question, but I'll assume this is on a mortgage of some type.

Before you charge ahead with your plan to pay off early, make sure there are no pre-payment penalties or recapture fees. Banks make money off your interest, and if you pay off sooner, you may be subject to some unpleasant fees.


If you send extra money "here and there", make sure you put a note on the payment that the additional funds are to be applied to the principal. If you don't do this, the lender will apply your additional payment to the payoff, meaning you are paying extra interest unnecessarily.

Answer 8

Call the lender and ask. Sometimes there is an early payment penalty that can be avoided by negotiation. Most of the time, the lender is only too happy to get extra payments, though. If you have coupons, send in 2 at a time to avoid confusion, for instance. Good for you, by the way!

Answer 9

You just want to be careful. Make sure and mark on each check that the extra money applies toward the principal.

In other words the 350 is some principal and some interest. The additional 350 would all go (or should all go) toward reducing your principal.

There are on-line places where you can estimate how long it will take to pay off.

Answer 10

Make two payments of $350.00 each month. The reason for two is this: The interest comes out of the first payment, the entire amount of the second payment is applied to principal, thereby reducing the overall balance fastest. If you pay just once, $700.00, they apply more to interest than if you just pay $350.00.