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I recently purchased a 2020 Camry financed through SE Toyota. The finance Mgr said I can mail a check for my monthly payment plus $1000 but make sure I write "future payment" on the check and I can make smaller payments for the first year then refinance, is this true? Example (1000÷12=83.33) my payment of $419-83.33= $335.67 for the first year. Can I do this or was the finance guy talking nonsense?

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What you are describing sounds like an old sales trick to get you into a car.  I hope that's not what happened here.

 

Technically you should be able to do what you're asking, but unless someone at SETFS gives you clear instructions on how to make the payments so they post according to your intentions, just keep the $1,000 and add $83 a month to your regular payment...  or pay the extra $1,000 as additional principal now and continue to make the scheduled payments so your balance is lower when your refi.

 

This was my experience with prepaying a BMWFS car loan:  In addition to larger principal payments, I still made monthly payments of exactly the scheduled payment amount because I was getting conflicting answers from different humans at BMWFS on how the principal payments would be treated.

 

Even the account statements were self-contradictory.  

 

The way I handled my account was probably unnecessary, but I had zero appetite to try to fix anything later.

 

AJabDJV.png 

 

 

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nonsense:

 

You payment schedule is clearly stated in the REG Z box on the contract.   If SE Toyota would put it in writing to you, then that might make a difference. If you pay online, their website may accommodate extra principal payments, I'm not sure, but my Honda loan had that ability.   Still didn't change my monthly payment.

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Even if it reduced the amount due the following month, paying less towards the note simply increases the interest you will be paying.  The prudent purchasers will always be the ones who pay, not only the amount due, but also an amount above and beyond and that goes directly to the principal. 

 

My Jag statement does not show a lesser amount as being due simply because I overpay, but the statements will show the Principal Reduction amounts that I have specified.  By paying extra every month, the note will have been burned roughly a year and a half ahead of schedule.  I could have done it sooner if I threw an extra hundred or so each month at the note.  However, on a $60-65K note, all it takes to shave a year and half was that extra few hundred.  On a lesser note, it should burn even faster...

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On 4/24/2021 at 11:17 AM, choppa02 said:

I recently purchased a 2020 Camry financed through SE Toyota. The finance Mgr said I can mail a check for my monthly payment plus $1000 but make sure I write "future payment" on the check and I can make smaller payments for the first year then refinance, is this true? Example (1000÷12=83.33) my payment of $419-83.33= $335.67 for the first year. Can I do this or was the finance guy talking nonsense?

 

This is probably the LEAST likely way they would handle this.  Either the $1000 would cover your next 2+ payments ($838) and put the remaining $162 towards the third (reducing it to $257 with it returning to the full $419 the following month, or would apply it as a principal reduction of $1,000 (taking payments off the back ass Centex outlined).  I highly doubt they would reduce the balance over the next X number of payments.

 

As Centex outlined, the best way is to apply it as a principal reduction as it lowers the overall interest expense.  The only way I would do it as a prepay of future payments was if my income stream were lumpy (say you worked commissions or some other manner where your income wasn't as predictable) and wanted to ensure my loan was satisfied until my next income came in AND I didn't trust myself enough to hold the money in savings and earn interest on it while making the monthly payment (A pretty narrow set of circumstances).

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Thanks to everyone that chimed in. This is a copy and paste of the email that he sent me:

 

Good Morning

 

$1000 divided by 12 months = $83.33   so if your payment is $419 – $83.33 = $335

 

$1000+419 should be your first payment and 11 payments of $335

 

  Don’t forget that the 2nd payment statement will show $0.00  you should always send the corresponding amount of $335+

 

 

One last thing your first payment make sure you pay it with a check and specify FUTURE PAYMNENT otherwise they will apply the full amount to principal and your next payment will be $419

Edited by choppa02
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9 hours ago, choppa02 said:

Thanks to everyone that chimed in. This is a copy and paste of the email that he sent me:

 

Good Morning

 

$1000 divided by 12 months = $83.33   so if your payment is $419 – $83.33 = $335

 

$1000+419 should be your first payment and 11 payments of $335

 

  Don’t forget that the 2nd payment statement will show $0.00  you should always send the corresponding amount of $335+

 

 

One last thing your first payment make sure you pay it with a check and specify FUTURE PAYMNENT otherwise they will apply the full amount to principal and your next payment will be $419

 

Call SETF and verify that independently, and then carefully watch your account and review every statement.

 

To me this wouldn't be worth the trouble over $1k spread over 12 months, when you have more logical ways to apply the $1k that don't require a third party (the dealer) to interpret and advise on your auto lender's rules and policies.  

 

 

 

Edited by cv91915
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14 hours ago, choppa02 said:

Thanks to everyone that chimed in. This is a copy and paste of the email that he sent me:

 

Good Morning

 

$1000 divided by 12 months = $83.33   so if your payment is $419 – $83.33 = $335

 

$1000+419 should be your first payment and 11 payments of $335

 

  Don’t forget that the 2nd payment statement will show $0.00  you should always send the corresponding amount of $335+

 

 

One last thing your first payment make sure you pay it with a check and specify FUTURE PAYMNENT otherwise they will apply the full amount to principal and your next payment will be $419

Who does this person sending the email work for? The dealer or the lender?

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15 hours ago, MarvBear said:

Who does this person sending the email work for? The dealer or the lender?

The finance Mgr at the dealership. I'm going to pay the $419 a month and refinance the 8% apr after a year. I'll hold on to the grand 

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13 hours ago, choppa02 said:

I'm going to pay the $419 a month and refinance the 8% apr after a year.

 

On 4/25/2021 at 5:27 AM, cv91915 said:

What you are describing sounds like an old sales trick to get you into a car.  I hope that's not what happened here.

 

How do you know you'll be able to refinance in one year and get a lower rate?  

 

I stand by my original concern.  :)  

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15 hours ago, choppa02 said:

The finance Mgr at the dealership. I'm going to pay the $419 a month and refinance the 8% apr after a year. I'll hold on to the grand 

Why not continue to throw more than the $419 per month so that you continue to reduce the principal amount upon which the interest is being calculated.  Even just rounding up to $450 a month instead of $500 helps get you right-side on the note soon as well...

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On 4/24/2021 at 9:17 AM, choppa02 said:

The finance Mgr said I can mail a check for my monthly payment plus $1000 but make sure I write "future payment" on the check and I can make smaller payments for the first year then refinance, is this true?

 

This finance manager is either an idiot or a con man.  Writing "future payment" on the check in no way obligates the lender to comply that early in the loan.  The current bank I have my car loan with has me specifically state how I want additional funds applied to the account.  Future payment or principal reduction.  Either way in the end I am paying less interest to them.  Prior to my designating how I wanted the funds applies they did reduce the amount "due" on me next statement but that did not stop me from making a larger than the actual note amount or minimum due payment.  The end result is the same.  Reducing the upside down gap on the loan quickly is always a good financial plan.  Stick with that for now and don't focus on the refinance for a few months.

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