Car Loan Repayment - extra payments???
Ok, I have been making extra payments on my car and want to know if it makes a difference if:
A)The extra money goes towards the principal
B)The extra money is credited towards the next month's payment and so on
Is there even a difference? either way I am paying the principal down right?
Update:Thanks Athiker,
I asked theis question because someone told me it was prob advancing my payments...which made no sense to me.
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(A) If the extra payment goes towards the principle you're reducing the interest faster but still must make monthly payments .(B) If the extra goes towards your next month payment, you're putting your payments ahead but if you still make monthly payments, it basically works out the same way.
If you pay extra towards your car loan and do not specify that it goes towards principal it goes to both principal and interest. In the end for a car loan, B may cost you a little more in interest but not enough to really worry. For a home loan, it is better to write two checks with one going to principal and the other towards the regular mortgage since the early part of a home loan is mainly interest.
Any extra payments go to reduce the principal on the loan. You do not have an option of paying the loan ahead. It does pay the note down quickly.
By paying the principal faster as scheduled, you are changing the terms of your car loan in a favorable way because in the end, you will have a shorter time to pay instead of what was quoted in the original terms of the agreement.
It should go toward the principal. The loan will be paid off sooner and you will have paid less interest as a result.