[McNeo]

Alright, this will be fun.

My Cruze is my first NEW new car, so I'm new to the world of auto financing.

My credit is horrible and I can't even get a credit card - how I got an auto loan is anyone's guess (my guess - since the bank has something they can come take if I don't pay).

It's a simple interest loan, which I think means that even if I pay it off early I still pay all the financing charges. I think. So that's the first question.

Second question - My payment is $321/month. If I pay $350/month does that help any way other than paying it off sooner? (i.e. on my credit report, getting forgiveness from the bank if I'm late sometime, refinancing in the future, etc)

Thanks,

 

[HarleyGTP]

You should make sure their isn't any type of penalty for paying it off early. But yes, it will help you in the long run.

 

[Robby]

Increasing the payment amount will obviously shorten the loan, but the best way to reduce the cost of the loan is to pay ahead of the due date.
The interest cost is calculated off the amount owed on each payment due date.
By advancing the payment, the interest cost is reduced because there is less principle to apply it to.

You can look up the definition of a simple interest loan by simply googling it.

So, if you want to drop (control) the cost of the loan, over the life of the loan, start by making an additional payment mid month........if you can, get two to three months ahead of schedule.
When the final payment coupon is reached, possibly months ahead of schedule (depending on you) the lender recalculates the amount of time the money was loaned against the amount owed at that time.

The result is you may find you owe nothing and may even get some money returned.

As far as impacting your overall credit worthiness....the credit report will show the car payment for each month represented with either a 'X' a '1' a '2' or a '3'.
X is a payment on or ahead of time....'1' is less than 15 days late, '2' 16 to 30 days late...'3' over 31.

You want to make a string of 'X's obviously......a sign of creditworthiness to a lender.
Car payments are helpful to credit enhancement but timely credit card payments are more so.
Thats because they are 'unsecured'....unlike a car loan being secured...the car is the security and the lender has something to repossess if it comes to that......just like a mortgage.

Trick is, you never want more than two credit cards and you should avoid total credit exposure past 20k.....that means two cards, each with a 10k limit.
Full payment of balance owed every month and a low carry over if required....but never a late pay.....that'll destroy a credit rating in short order.

Good luck.....advice though....stay two payments ahead....more if you can afford it.....the only thing better than making the last payment is the day you can walk in a dealer and write a check for the full amount......the finance manager will despise you.

Rob

 

[McNeo]

There's no penalty for paying it off early. I was planning on making payments at the beginning of the month, versus the end of the month when they're due, simply because it lines up with my pay periods if I do it that way. I got my first bill from them and my first payment isn't due until Feb 21. I've already made an account with them online and I can pay there so I'll be one month ahead right off the bat.

Thanks for the info!

 

[zerogravity]

Make sure your extra payment amount is going towards PRINCIPAL, and not the interest rate. Some banks will apply the extra amount towards paying the total interest amount of the loan. They are in the business of making money off of you. They know you are looking to pay off early and will loose money in the long run.
Talk with you bank before making the big payments.
I learned the hard way years ago. Most banks will apply the extra to principal if you ask.
Just trying to pass my knowledge on to others

good luck.

 

[obermd]

Simple interest is computed from your principal balance. It is a multiple of your balance as of the last payment and kept in a separate accounting column. (Compound interest is added to the Principal balance on a periodically - usually daily - basis and should be avoided at all costs in a loan.) Payments are applied to the interest column first and then to the principal. By making either early or larger payments you reduce your principle due faster, resulting in lower "real" interest accrual. When your principal due hits zero, your loan is paid, regardless of how many payments "early" it is.

Paying more than the minimum won't get you any skipped payment breaks, but paying twice a month might depending on the actual terms of the loan. Paying more will reduce the overall cost of the credit however and your final payment will reflect this. Paying more can even result in having to make fewer payments.

 

[obermd]

Make sure your extra payment amount is going towards PRINCIPAL, and not the interest rate. Some banks will apply the extra amount towards paying the total interest amount of the loan. They are in the business of making money off of you. They know you are looking to pay off early and will loose money in the long run.
Talk with you bank before making the big payments.
I learned the hard way years ago. Most banks will apply the extra to principal if you ask.
Just trying to pass my knowledge on to others

good luck.

Good point. When paying extra/early always write on the payment that it is to go to principle. Car loans aren't too bad in this respect but mortgage companies will always apply the extra to the Escrow. Yes, you will get it back but the bank will have sat on your interest and won't refund that.

 

[McNeo]

Just checked online and in addition to the "Payment amount" field which is pre-populated there is an "Additional principal payment" field. Makes sense now.

 

[zerogravity]

Just checked online and in addition to the "Payment amount" field which is pre-populated there is an "Additional principal payment" field. Makes sense now.

good thing you checked! !!
Glad the option was there!!!

 

[iKermit]

Payments generally go down if you make extra payments, when i had my Volvo S40 i would make an extra payment some months, and other months 1 lump sum payment. Payments after a year dropped from $340 to something to the sound of $260 a month. My credit score sky rocketed and now i apply for "top tier" credit with leases/finances etc.

I would call the bank, and make sure they apply it to principal, and every year, try to negotiate the interest rate down. I did this and i was succesful with it.

 

[obermd]

As a side effect of making the payments on your Cruze your credit score will go up. Also, check with your insurance company to verify they didn't use your credit score to "raise" your rates. The insurance industry keeps claiming that people with low scores are more likely to be in accidents but they have yet to offer up any independent (not paid for by the insurance industry) evidence of this.

 

[Aussie]

Not sure how credit card payments work in the US, but back when I had one I started paying an amount each week which was more over the month than the monthly minimum payment. When going over my statement I noticed a regular charge for late payment and rang the bank demanding explain why and was nearly floored when told that every month, because the weekly payments were not for the amount due on the date I was late for that month. When I explained what I was doing the guy said only the payment near the due date counted as a payment. It has been several years since I got rid of the credit card and the bank. The charge for late payment was $25 each month and I never got a letter telling me I was late, I wonder why?

 

[EcoDave]

Not sure how credit card payments work in the US, but back when I had one I started paying an amount each week which was more over the month than the monthly minimum payment. When going over my statement I noticed a regular charge for late payment and rang the bank demanding explain why and was nearly floored when told that every month, because the weekly payments were not for the amount due on the date I was late for that month. When I explained what I was doing the guy said only the payment near the due date counted as a payment. It has been several years since I got rid of the credit card and the bank. The charge for late payment was $25 each month and I never got a letter telling me I was late, I wonder why?

That's Crazy. I also pay both of my 2 major credit cards on a weekly basis (because my job pays me every Friday) and I have never had that happen to me.



OP, I highly recommend monitoring your credit. I use www.creditKarma.com to keep track of mine. It's free and very informative.

I had bad credit too and had no Credit cards when I bought my Cruze in March 2013.
A couple of months later I received several Credit Card Offers and I chose Citi and Capital One due to their no annual fees.
Since then I have gone from a score of 619 up to 641. The report card page makes it easy to understand how to improve your score.

 

[99_XC600]

Keep current on your payments for at least 6 months to a year and then start to look at other banks to refi the loan.

I'm going to take a wild guess and say you were approved through either CAC (Credit Acceptance Corporation) Santander and GM Financial formerly AmeriCredit. All of these companies serve as good resource to get a loan when your credit is less than perfect. However using them for the life of the loan can leave you upside down even 4 years into the loan due to the high APR.

Take it as a blessing to rebuild your profile and make sure you are PERFECT in your payment history and refinance out of the loan as quickly as possible. Some good lenders are NFCU and USAA.

 

[obermd]

Security Services Federal Credit Union is another good source for car loans.

 

[McNeo]

It's currently financed through Chase.

I'm planning to open a savings account at a credit union, put $100/month into the savings account, then go back in year and refinance the car with them (and tell them they can have $1,000 from the savings). I think that should work out pretty good.

 

[NickD]

Typically trading off a nice bonus for reduced interest rates. Regarding early payoff, have to read the fine print on your contract. Was looking at some GM vehicle that were offering $5,000.00 off the sticker price if paid in cash. Or could get your own loan if you don't have cash. But if you did finance through them and paid full sticker price for the vehicle for zero percent interest. Wouldn't make any difference if you paid the loan off the next day, will still be out that 5,000 bucks.

But here's the catch, if you are a day late in making that payment, will get a stiff charge. This varies considerably with different lending institutions, have to read the fine print and will get a headache when doing so.

The other deal is you don't even know if the financial institution at your local bank is going to maintain and keep your loan. Can turn around the next day and sell it to the Mafia, and if you miss a payment will come over and break your legs.