6 replies to this topic

[twizzle]

So, we took out a small auto loan at credit union in January and we planned to pay it down within the year. Our loan info said there was no penalty for early pay-off and we could make principal only payments to pay it off more quickly. Our regular pymt is auto-debited on the 23rd.


Now, it's been a bit since we've had a car loan. so we're a bit clueless. We wrote to ask them how exactly we can make a principal only overpayment and we got this back:


When making additional payments to the loan, if you are are looking to have them go to principal, you will need to make the payment on the day that the payment is due. Once the monthly payment has been made you are then able to make an additional payment which will all go to the principal of the loan.


Bold mine. On the day? And only the day? I wrote back and said are you serious? I can only do this once a month? Because my account only allows me to make ONE pymt a day to the loan...and it's auto-debited. I can't change the amt. So how the heck do I make a second payment on that day?


I got back the same exact response as above. The loan is in my husband's name and he'll be calling later to clear this up. But...


Am I missing something? Asking the wrong ques? Has anyone heard of this??? Or is this standard?

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[MarvBear]

Once the monthly payment has been made you are then able to make an additional payment which will all go to the principal of the loan.

Bold mine, from your quote. Make the payment then.

[AKAGeorgiaGirl]

What happens, most likely, is any payment first applies to accrued interest and fees (if any). Then the rest of the payment goes to principal. If you make extra payments it will apply extra to principal. But the only way to have a payment go ALL to principal is no accrued interest, so there must be another payment the same day that pays the interest. If not here is what happens:

Say you made a regularly scheduled payment today and the balance after your payment posts is $10,000. Your APR is 10%. The daily interest accrual is approximately $2.74 per day at this point.

If you wait until the next payment is due (30 days later) and pay $400, then about $82.20 will be interest and $317.80 goes to principal.

OR

If tomorrow you make an extra payment of $400, $2.74 will pay accrued interest and $397.26 will pay down principal. Now the daily interest accrual is only $2.63, so in 29 days when you make your next scheduled payment of $400, it pays 29 days of interest (76.27) and $323.63 goes to principal. You pay less interest overall because you paid your principal down sooner. You still paid 30 days of interest, but 1 day was on the extra payment and 29 days were included in the next scheduled payment.

A payment must be applied to interest, fees or principal. They can't apply it to more interest/fees than you've accumulated. Its a simple matter of finance. The lender is always going to take their earnings before reducing your principal, because its smart business and because once your principal is lowered then it changes the daily interest accrual.

Edited by AKAGeorgiaGirl, 27 June 2012 - 07:18 PM.

[twizzle]

Once the monthly payment has been made you are then able to make an additional payment which will all go to the principal of the loan.

Bold mine, from your quote. Make the payment then.

Can't. It's not true. That's the entire problem. I can only make one payment a day.

They say I can only overpay one day a month-the day they auto-debit my reg payment. But the auto-debit constitutes my one payment that day. I can't make more in that 24 hr period-their policy. Sooooo, it's impossible to make an additional principal payments that day.

My husband called and it was like an Abbott and Costello routine. They kept saying it could be done, but that we couldn't actually do it.

We finally came to the conclusion that maybe the only way to pay more toward principal is to change our auto-debit payment. Then the extra over our reg payment amt will go toward principal. But that doesn't help us (and they didn't actually verify it would work. Very frustrating.). We were planning on paying it off over the summer with last quarter's bonuses and my royalty checks-big lump unknown sums. So, we just asked for the pay-off and are sending the check today. Won't be getting a loan from them again, tho. Been one headache after another.

Thanks for the advice, both.

Edited by twizzle, 28 June 2012 - 09:45 AM.

[AKAGeorgiaGirl]

If you make a payment - they will apply it to the loan. I think the issue is your question of how to make a 'principal only' payment. That can only happen on the same day as another payment, where the other payment covers accrued interest. Otherwise as I explained a few posts up, a payment will first cover accrued interest and fees and then principal. If its an extra/mid-cycle payment, then the next scheduled payment would of course pay less accrued interest (because you've already paid some of it) than it typically would.

Are you saying that you walked into a branch on the payment due date and handed them a check for $X and they refused it? Or that you made an extra (any date) payment and it was not applied to your account? I doubt either of those scenarios would happen. Its a problem of you not understanding how payments are applied. Pay extra, on any date or any amount and your loan will be paid off sooner & with less interest.

[twizzle]

Are you saying that you walked into a branch on the payment due date and handed them a check for $X and they refused it? Or that you made an extra (any date) payment and it was not applied to your account? I doubt either of those scenarios would happen.

Neither happened. In my orig post, I said I contacted them to ask how to make principal payments. However, had I walked in to make that payment they wouldn't have refused the check. It just would have been applied to the acct the next business day. They only allow one payment per business day.

Its a problem of you not understanding how payments are applied. Pay extra, on any date or any amount and your loan will be paid off sooner & with less interest.

It's not an issue of my not understanding how payments are applied. It's an issue of us not understanding how they say I can make additional payments on my due date (bold in orig post-"on the day") so they can be applied to principal when I'm not allowed to make additional payments on my due date. I'm not allowed to EVER make additional payments per business day. Just one a day.

Like I said, I'm assuming we could change our auto-debit amt as that would technically solve the issue, but it's not a great solution for our situation and they didn't verify whether they would allow us to. We don't feel like waiting on them to get back to us.

Again, thank you for the advice. We sent in the pay-off. This CU has been ridiculous to work with from the get go, one issue after another, and this policy is definitely beyond ridiculous-sure, you can make additional payments on the day its due except for the fact that we won't let you ever make additional payments. We feel misled, so it's time to move on.

Edited by twizzle, 28 June 2012 - 02:34 PM.