end car payments ASAP (afford)

[720lady]

My ultimate goal is to pay off my car early due to high interest rate. I was told if I pay it off early this would help me reduce the overall amount financed. My finanical goal is make an extra payment each month starting October 2009 to meet paying the loan off 1 year early in October 2010. If for some reason I can't meet this high goal. Would I save more if i pay 1/2 of my montly payment toward the principal amount or to just place the 1/2 payment amount into a savings account earning 3% interest? My montly payment amount is $334 per month with a 13.9% rate.

 

Would someone help me do some of the math or calucaltions so that I may save the most?

 

Thanks!

[mk_378]

Any extra money you send to pay down the car loan principal means the lender will stop charging you 13.9% on that amount. So you earn 13.9% paying down the car early, compared to 3.0% putting it in the bank.

 

You should of course have some money in the bank so you can keep up the payments in case of job loss. The car lender will demand their $334 per month every month until fully paid off, even if you have paid some extra in the past.

[MarvBear]

And make sure the lender properly credits your extra payments towards the principle.

[720lady]

Thanks. Now I have a few more questions. My biggest issue is that i want to possibly make some small payments with extra funds when able, until i begin making an extra payment each month in October.

 

My payoff amt is ~10K

 

On my bill they place something like this every month. I send payments every 14 days.

 

date amt rcvd interest paid principal

 

5/15/ $167.50 59.37 108.13

5/1 $167.50 51.99 115.51

 

I just called and found out that my interest per day is $3.87

 

for 30 days = 116.10

 

Until October, I may have about $116.10 to pay monthly. How would a payment of $116.10 per month effect my balance.? Would it be best to pay this amount towards the principal at the beginning of the month or the end, or is there a difference at all?

 

Please explain.

 

Thanks!

[MarvBear]

If interest is computed daily, then obviously the earlier that you pay the more interest you would save.

[mk_378]

In general you aren't allowed to pay less than $334 (total) every month or you will be considered in default (late payments on CR, car subject to repo). Some lenders do let you skip payments if you have paid extra in the past. You will need to ask them to determine their specific policy.

 

If you're talking about paying $116 extra every month in addition to the standard payment, you want to send that money in as soon as you have it. Interest is based on the balance every day, so as soon as you reduce the balance, the interest charged the next day drops.

[720lady]

Okay, I just want to make certain that i understand the math involved.

 

I should pay the 116 ASAP. And to calculate my loan balance correctly, since i would eliminate all interest charges. Every month that I make a payment of $334 it deducts from the original balance. is that what you just said?

 

Thanks

[radi8]

Every month that I make a payment of $334 it deducts from the original balance. is that what you just said?

 

 

Part of that pays off the principle balance, part of it goes towards interest. The additional $116/month will go entirely towards reducing the principle balance.

 

Google "amortization calculator" to find a calculator that will create a table for you showing exactly how much of your payment is principle and how much is interest- the ratio changes every month.

 

BTW- back of the hand math shows you saving about $700 in interest charges by paying the additional $116 every month.

[MarvBear]

http://www.bankrate.com/calculators/mortga...calculator.aspx

 

that should answer your questiion.

 

It's a pay extra ammortization calculator.