by Beks
Oops! Thanks to a heads up from readers, I realized I was paying my bills incorrectly!
I know, I know, leave it to me to figure out how to pay my bills wrong.
I haven’t been requesting my lender for Auto Loan 2 to place all payments toward principle and not advance the payment! I’m left paying a little more interest than I should be paying.
Even in my non-debt reduction days, I always paid a little more on my car payments. I’d let it get a month or two ahead and consider it my rainy day fund. If I couldn’t afford my car payment one month, who cared? I wouldn’t get penalized for not paying. But now that I’m a YEAR ahead in payments, perhaps it’s time to request all payments from here on out go toward the principle.
If you are pushing forward on those car payments (or mortgage payments, student loan payments, or other secured loans), remember to request a principle reduction.
And thanks to my readers for making the catch!!
Beks is a full-time government employee who enjoys blogging late into the night after her four kids have gone to sleep. She’s been married to Chris, her college sweetheart, for 15 years. In 2017, after 3 long years working the Dave Ramsey Baby Steps, they paid off more than $70K and became debt free. When she’s not working or blogging, she’s exploring the great outdoors.
Back when I bought my car in 1997, it wasn’t possible to pay extra to principle. All I could do was pay extra to pay it quicker. This was through a credit union. I specifically asked. So it depends on the type of loan …
I’ll have to remember that when I buy a car next month. I haven’t had a car payment in so long so this will be a good tip to remember : )
I wondered about that when I read your update, but I was too chicken to say anything. I’m glad some of your other readers were brave.
Is it just me, or is it a little funny that the commenter above is planning on taking out a loan?!
I think you mean “principal” not “principle”.
I think it depends on your loan. When I was aggressively paying off my car loan, even though the bank said that my next payment wasn’t due for many many months, they did show that the principal amount was going down the correct amount. I was not prepaying interest. You could run a quick amortization schedule and compare it to your statement to see if each month you’re getting charged interest on a lower principal or on the original amortization schedule.
I like the tips you give they are very helpful
I work for an auto finance company. If you have a simple interest loan your extra payments are likely being automatically applied to principal anyway. The bill will appear paid ahead but if you continue to make payments monthly in the amount agreed upon in your contract…you will payoff your account early and save on interest. The advantage of leaving the loan appearing paid ahead is if you have a financial emergency that you are not obligated to make a payment for a month or you can make a minimum payment. Just be aware that interest will continue to accrue.
FYI – principal is the person at the school, principle is the money you borrowed (or your views/beliefs). I remember the difference this way, the one that ends in pal (as in buddy)is a person.
JMK – you’re half right. 🙂 Principal also applies to the money you borrowed, as in the principal amount of the loan, vs. the interest owed. Principle is a rule, law or general truth. For a bit more backup – http://www.diffen.com/difference/Principal_vs_Principle