Effect of extra payment

[LDB]

I got an email from Honda to set up my Financial Services account. I don't know why, but after setting it all up I decided to make a payment today. It isn't due until 7/12. So I paid the first payment amount due today and have it set up for automatic payments starting 7/10. What effect will the extra payment today have on the loan? Will it just finish one month sooner than the paperwork says or will it do anything else?

 

[Pew]

I think you'd have to check out the rules from said bank. If I pay extra to Bank of America, they use it for the principal payoff. If I paid extra to Ford's Financial Services, it would only go to the interest.

 

[LDB]

Maybe that will be in the info they said will arrive within the next two weeks.

 

[CKN]

Anytime I make an extra payment it just extends when the next payment is due. YMMV.

 

[supton]

What does the fine print say? The Wells-Fargo had on the front page, not buried in the fine print, that any extra would go towards the next month's payment. I could not put anything towards principle until I had 3 months paid up, then it would revert to going towards principle.

Usually anything extra goes to principle, but the fine print can state otherwise.

 

[The Lube Guy]

What effect will the extra payment today have on the loan?

It counts towards the principal balance.

Be careful when you get close to paying off the vehicle, because when you have set up automatic payments, they tend to cancel the automatic setup right before the final payment. It happened to me at least a couple of times with different financial institutions, but thank goodness I caught them before doing any damage to my credit.

 

[LDB]

According to Honda it pays the interest accrued to this point, 7 days worth in this case, and then applies to principal. So it will basically slice the final payment off the tail end.

 

[cptbarkey]

Anytime I make an extra payment it just extends when the next payment is due. YMMV.

check if that is an actual principle payment. If you due date gets extended, likely all you did was pay additional interest. Banks do alot to get their pieces of 8.

 

[dubber09]

Please correct me if I'm wrong, additional payments go directly toward principal amount you owe thus reducing it that in turn reduces the term and total interest for the term.
Ideal case is you take a loan and pay it in full same or next day, that's how people take advantage of lowering car price while accepting long car loan terms (intended to earn more $$$ in interest for bank or dealer) when there is an option to pay in full at any time.
Interest is normally calculated on remaining principal amount so the lower principal is and the sooner you make any additional payment the lower total interest you pay.

 

[The Lube Guy]

Please correct me if I'm wrong, additional payments go directly toward principal amount you owe thus reducing it that in turn reduces the term and total interest for the term.

That's how compound interest conventional loans work.

 

[LDB]

According to HFS, Honda Financial Services, each payment pays the interest due at that point and the remainder applies to principal. I presume, and honestly am too lazy and uninterested enough to dive deeper, the amount of interest due will be lower at each subsequent payment due to the interest being lower since it is on a now lower principal amount. So paying the first payment due amount extra 5 weeks early will slice 1.x months of payment due at the tail end. Maybe I'll get curious enough to research at some point. That sounds as good as anything at the moment though.

 

[CKN]

According to HFS, Honda Financial Services, each payment pays the interest due at that point and the remainder applies to principal. I presume, and honestly am too lazy and uninterested enough to dive deeper, the amount of interest due will be lower at each subsequent payment due to the interest being lower since it is on a now lower principal amount. So paying the first payment due amount extra 5 weeks early will slice 1.x months of payment due at the tail end. Maybe I'll get curious enough to research at some point. That sounds as good as anything at the moment though.

I think most work that way.

 

[JeffKeryk]

Anytime I make an extra payment it just extends when the next payment is due. YMMV.

That's a lousy loan; it maximizes your interest expense. I would never take a loan like that unless the rate was super low.

 

[supton]

That's a lousy loan; it maximizes your interest expense. I would never take a loan like that unless the rate was super low.

Why? as long as they just send you a notice at the usual time, you could make the usual payment (maybe every few months you have a little bit extra jingle, and feel like paying towards principle).

Now if the loan doesn't let you do early payoff, or only puts extra towards principle, that sort of thing.... yeah I'd agree with you. I didn't like the terms of my Wells Fargo loan so I wrote a check and was done with that loan.

 

[JeffKeryk]

Why? as long as they just send you a notice at the usual time, you could make the usual payment (maybe every few months you have a little bit extra jingle, and feel like paying towards principle).

Now if the loan doesn't let you do early payoff, or only puts extra towards principle, that sort of thing.... yeah I'd agree with you. I didn't like the terms of my Wells Fargo loan so I wrote a check and was done with that loan.

I had a loan on a Corvette that put extra payment towards pre-paid interest. IMO, that's highway robbery. I worked hard to put extra into every payment. When I traded it in on new Vette, they explained that extra payments did nothing for me.

 

[supton]

I had a loan on a Corvette that put extra payment towards pre-paid interest. IMO, that's highway robbery. I worked hard to put extra into every payment. When I traded it in on new Vette, they explained that extra payments did nothing for me.

Like I said--read the fine print. If it's not a "nice" loan, get out of it, or live with the consequences.

I don't like these loans, I too think of that as "bad" but really, it took two to sign the loan documents. If you don't read the terms (or understand what you're signing up for), then the onus is on you.

Not a nice answer I know, but that's life.