What would be the reason that a person would make an extra payment??

Question

on a car loan and have it go to the interest as opposed to the principle??? Im curious because I am getting ready to make an extra car payment today (i owe about $12,000) and i was wondering about it.

Answer 1

If you only pay the minimal balance, on any loan, then you'll be in debt forever. Usually the minimal payment required will just cover the interest cost and almost none of it goes toward the actual loan.

Making two payments will cover the interest cost and pay more toward the loan, and it will pay it off sooner. Also, the interest cost goes down as the loan balance goes down, you'll pay less interest if you owe less money.

Keep in mind also as long as your vehicle is financed, then you are required to have full insurance coverage which costs a lot of money itself. Pay your vehicle off as soon as possible, it will save you thousands of dollars.

Answer 2

if they did it was most likely unintended. if the extra money is not designated to go to the principle (in the contact or agreement already or in a note) then the person or entity receiving the loan payment can assume that the extra money is just to go to the next month payment. on some loan agreements it is not being written in that you can't make the payments early to shorten the loan.

Answer 3

Someone would make an extra payment to interest if they weren't able to make their next months payment because they were out of town or something. You would pay in advance so you didn't have to worry about it. You would make an extra payment to principle to pay off the loan faster but you would still have to make your regular payments during the month. Hope that helps.

Answer 4

I would not do that. It actually looks bad on your credit to pay off early. I would wait the time out or put the money in the bank and pay it about one week early only.

If you want to get something paid off early or save on interest by making extra payments then I would use it towards a house note or credit card. Car loans are make to collect all of the interest regardless and it actually hurts your credit to pay them off early. They want to see a history of patience on your credit report.

You can actually put the money in savings and get interest for it before you use the money and it will help you build an emergency fund in case you cannot make the payment one month. It is more efficient for you, and will make you a few bucks in the long run.

It will be worth more in the long run though if you pay extra on a house or credit cards.

Answer 5

it makes no sense to do that - make sure the loan company even accepts extra principal pmts - from my experience if you send in extra money, they just deduct it from your next months payment (which  is really just paying next month's interest early - you have to make it clear that you want to pay extra on the principal

Answer 6

Not true, it does help.  I make double payments all the time and extra. I took out a 5 year/60 month loan on my car.  It will be paid off 2 years early by the end of September.   The issue is at the beginning of your loan, the principal is higher, so more of the payments will cover the interest.  simple mathematics. .

Answer 7

Tell them you want it to go to principal only. If you pay the interest, you just giving them your money. The interest is dependent on the length of th loan. If you pay the loan off faster (which is what you are doing when making double payments) you will have less interest. So make sure you tell them that the extra payment goes to PRINCIPAL.