topic can this bank do this? in Auto Loans

can this bank do this?

rootpooty — Sat, 10 Mar 2012 21:34:54 GMT

So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095! Right away I ask why so much and they explained to me that for the first year all the payments I've made went to interest only and now my payments will start to go to the principle. So even if I wanted to pay the loan off now I wouldn't save a dime. Is this how all auto loans work or did I get the shaft from this bank?

Re: can this bank do this?

StartingOver10 — Sat, 10 Mar 2012 21:54:11 GMT

Do you have a copy of your car note? Pull out your copy and read it carefully.

There are lenders, especially those at Buy Here Pay Here type places (and other auto places) that loan the money under a different kind of note. A long time ago they used to call these types of loans "Rule of 78's". Now however, the loan is called by a whole variety of names including "Add on Interest". What that means is they take the principal amount and multiply it by the interest rate and "add on the entire interest amount" to the principal amount. And yes, you pay the interest upfront and don't get to the principal balance until several years later (usually after 2 yrs or so). There are restrictions on these type of loans. They restrict the term of the loan and in some states they may even restrict the interest rate. You would have to look up your state's statutes to see what the restrictions are where you live.

A "regular" car loan is one where the interest is simple interest and each payment consists of a portion paid to the interest that accrued since your last payment and a little bit of principal repayment (if any money remains from the payment you made).

Please read your loan so you know what you have commited to when you signed the note.

Once you read the note, find your state's statutes to see if what they are doing is legal. You may need an attorney to help you.

Re: can this bank do this?

MarineVietVet — Sat, 10 Mar 2012 22:00:03 GMT

rootpooty wrote:
So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095! Right away I ask why so much and they explained to me that for the first year all the payments I've made went to interest only and now my payments will start to go to the principle. So even if I wanted to pay the loan off now I wouldn't save a dime. Is this how all auto loans work or did I get the shaft from this bank?

So is $19,000 the total amount financed or the sales price without TT&L etc.? I ask because when I run an auto loan calculator for $19,000 for 60 months @ 8.2% I get a monthly payment of $387.07.

Edited for typos.

Re: can this bank do this?

LS2982 — Sat, 10 Mar 2012 23:40:43 GMT

rootpooty wrote:
So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095! Right away I ask why so much and they explained to me that for the first year all the payments I've made went to interest only and now my payments will start to go to the principle. So even if I wanted to pay the loan off now I wouldn't save a dime. Is this how all auto loans work or did I get the shaft from this bank?

You would have to review your paerwork on it.. I know if your pying more than the contracted monthly amount whatever extra you paying along with the original amount is being applied to the principal balance.

Re: can this bank do this?

pizzadude — Sun, 11 Mar 2012 01:14:14 GMT

rootpooty wrote:
So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095! Right away I ask why so much and they explained to me that for the first year all the payments I've made went to interest only and now my payments will start to go to the principle. So even if I wanted to pay the loan off now I wouldn't save a dime. Is this how all auto loans work or did I get the shaft from this bank?

Definately check your paperwork. If this was a traditional auto loan then you would have had to borrow ~$22,300 @8.2% for 60 months to have a payment of $450/month.

Re: can this bank do this?

webhopper — Sun, 11 Mar 2012 02:08:38 GMT

If you financed 19,200 at 18.2% for 60 months with 1500 down you would have a payment of 451.36.

Seeing the cards in your signature on here, are you sure you got 8.2%? Who is your finance company? I e heard if Santander screwing people like this....

Re: can this bank do this?

FrugalRican — Sun, 11 Mar 2012 02:26:01 GMT

Sounds like it might be time to refinance, as well, somewhere else.

Re: can this bank do this?

rootpooty — Sun, 11 Mar 2012 09:23:05 GMT

It's def 8.2% financed by Huntington national bank out of Ohio. When I get home il get the car note out and go over it carefully. I live in Indiana but the bank is in Ohio so which state statue should I look up? My main question is can a bank apply 100% of payments to interest first then get to the principle? Right now refinancing would be pointless cause according to the bank starting 3 months ago 100% of my 451.00 payment is going to the principle.

Re: can this bank do this?

pizzadude — Sun, 11 Mar 2012 10:53:35 GMT

rootpooty wrote:
It's def 8.2% financed by Huntington national bank out of Ohio. When I get home il get the car note out and go over it carefully. I live in Indiana but the bank is in Ohio so which state statue should I look up? My main question is can a bank apply 100% of payments to interest first then get to the principle? Right now refinancing would be pointless cause according to the bank starting 3 months ago 100% of my 451.00 payment is going to the principle.

If this is the case then you did not get a traditional car loan with simple interest, even with high interest rates some portion of each payment is allocated to principle every month. In terms of being legal, if you signed the contract then you are bound to the terms....

Re: can this bank do this?

StartingOver10 — Sun, 11 Mar 2012 14:37:46 GMT

rootpooty wrote:
It's def 8.2% financed by Huntington national bank out of Ohio. When I get home il get the car note out and go over it carefully. I live in Indiana but the bank is in Ohio so which state statue should I look up? My main question is can a bank apply 100% of payments to interest first then get to the principle? Right now refinancing would be pointless cause according to the bank starting 3 months ago 100% of my 451.00 payment is going to the principle.

Post the paragraph that details how the payments will be applied. Leave out any personally identifying information. There should also be a paragraph that details what happens in case of a default and which state's laws prevail (by the way, sometimes they put this in and it doesn't apply but you have to start with what is actually written in the contract).

Re: can this bank do this?

Chris123nTx — Sun, 11 Mar 2012 18:30:50 GMT

I am resonable sure that you are, on most simple interestloans going to be paying primarily interest for the first couple of years on a six or seven year contract. The amount applied to principle increases each month.

That is the why it is smart to always try to pay more than the monthly payment, being sure that it will be applied to the principle.

This is one of the big reasons people get upside down on car loans. That and the normal depreciation on the car as it ages.

Re: can this bank do this?

rootpooty — Mon, 19 Mar 2012 05:43:47 GMT

thats not what the bank did though. they applied 100% of the payments to the interest. they explained to me that there is 8,000 in interest on the loan. this is so confusing.

Re: can this bank do this?

StartingOver10 — Mon, 19 Mar 2012 11:56:29 GMT

Based on your description, it does not sound like a regular simple interest loan. I know its hard for people to believe, but there are different types of loans that are not simple interest. I

It's not possible for us to help though without seeing what you signed. If you can, just type out the paragraph relating to how the payments are applied in your note. You can leave out personally identifying info for privacy.

Re: can this bank do this?

jimbo831 — Mon, 19 Mar 2012 16:12:34 GMT

StartingOver10 wrote:
Based on your description, it does not sound like a regular simple interest loan. I know its hard for people to believe, but there are different types of loans that are not simple interest. I

It's not possible for us to help though without seeing what you signed. If you can, just type out the paragraph relating to how the payments are applied in your note. You can leave out personally identifying info for privacy.

This sounds like a precalculated interest loan, often called "Rule of 78"

http://en.wikipedia.org/wiki/Rule_of_78s

Under this type of loan, the interest over the lifetime of the loan is calculated up front and immediately becomes part of the balance due. Then your payments are going towards this new balance. Under these types of loans, paying off the loan early will not save you any money since all interest is front loaded. These are not common from what I have read, especially with a bank like Huntingdon (not some loan shark lender). Either way, you need to review your loan paperwork to see if this is the case. It should say very clearly whether the loan is rule of 78 or simple interest.

Re: can this bank do this?

ScoreBooster — Mon, 19 Mar 2012 18:05:21 GMT

This might be a dumb question - but what happens (in theory) when the OP would refinance in the near future? IMO, the bank would have to refund a part of his paid interest. I mean, if they collect the entire interest upfront, the payoff must be lower than the current balance...

Re: can this bank do this?

jimbo831 — Mon, 19 Mar 2012 18:10:06 GMT

ScoreBooster wrote:
This might be a dumb question - but what happens (in theory) when the OP would refinance in the near future? IMO, the bank would have to refund a part of his paid interest. I mean, if they collect the entire interest upfront, the payoff must be lower than the current balance...

Nope, they do not. With a rule of 78 loan, it is in the loan agreement how this works. Interest is capitalized immediately and becomes part of the principle immediately. For the rest of the loan, you are simply making "interest free" payments towards this new principle. A refinance is almost impossible on these types of loans because you will always be upside down. They are a huge ripoff. I would always avoid them at all costs.

Edit to add an example:

You buy a car for $10,000 at 10% APR. I don't feel like doing the math. Let's say over the live of a 5 year loan, you would pay a total of $15,000. Right at the start of your loan, your balance becomes $15,000 now. All payments you make go towards that $15,000. That interest is non refundable. It will be the same if you make minimum payments for the life of the loan or pay it off in a month.

Re: can this bank do this?

ScoreBooster — Mon, 19 Mar 2012 18:09:14 GMT

rootpooty wrote:
So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095!

So you already paid interest for the entire 5 years although so far, you only "used" less than 2 years of the loan. So I don't quite understand why your payoff isn't lower than your current balance. That smells very fishy...

Re: can this bank do this?

jimbo831 — Mon, 19 Mar 2012 18:11:48 GMT

ScoreBooster wrote:
rootpooty wrote:
So I purchased a car late 2010 for 19000. The loan is 451.78 for 60 months @ 8.2%. I've made 20 payments so far so roughly I've paid 9000 towards the loan. I called yesterday to see what the payoff is and was told 17095!
So you already paid interest for the entire 5 years although so far, you only "used" less than 2 years of the loan. So I don't quite understand why your payoff isn't lower than your current balance. That smells very fishy...

The OP may not have this type of loan as he has not reported back yet. But if it is a Rule of 78 loan, this is exactly how it works. It is fishy for sure, but legal. You have to sign an agreement and these terms would be in the agreement. When I got my car loan, I knew it was going to be a huge APR as a sub prime lender. I just made a point to make sure it was a simple interest loan, so I could avoid most of that huge APR with a refinance later or paying it down faster.

Re: can this bank do this?

ScoreBooster — Mon, 19 Mar 2012 18:12:02 GMT

jimbo831 wrote:
ScoreBooster wrote:
This might be a dumb question - but what happens (in theory) when the OP would refinance in the near future? IMO, the bank would have to refund a part of his paid interest. I mean, if they collect the entire interest upfront, the payoff must be lower than the current balance...
Nope, they do not. With a rule of 78 loan, it is in the loan agreement how this works. Interest is capitalized immediately and becomes part of the principle immediately. For the rest of the loan, you are simply making "interest free" payments towards this new principle. A refinance is almost impossible on these types of loans because you will always be upside down. They are a huge ripoff. I would always avoid them at all costs.

WOW, that sucks! I think I'd cut my hand off before I'd go ahead and sign such a loan. Terms like that should be outlawed..:smileyfrustrated:

UPDATE LOAN AGREEMENT

rootpooty — Wed, 21 Mar 2012 10:47:53 GMT

ok im going over my car note which took me forever to find. this is such a mess. here we go

sale price of the car 19,000. then they added in something called gm smart care which is 790. then they added GAP for 460.00 then 15.00 for licensing and state and local taxes for 1385.00 plus another preperation fee of 155.00. total financed is 21,845.30 @ 8.6790% for 60 months making my payments 451.70

payment agreement: you agree to pay this loan according to the payment schedule shown in the federal disclosures above. however the final payment amount shown above is only an estimate. on the final payment due date you must pay us the outstanding balance of the principal amount and any accrued but unpaid interest and othe charges. the pyment schedule in the federal disclosures is based on the assumption that we recieve each payment on its due date. if you pay late incure other charges or if other amounts are added to you loan as permitted by this agreement such as taxes insurance or other charges with respect to the collateral. the final payment amount could be significantly more than the estimate shown in the payment schedule above.

all payments are due on the same date of the month as the first payment or on the last day of the month that does not have a corresponding date. you agree that we may apply all payments first to earned interest and then to the principal amount and or other charges and amounts owed as we determine. if we recieve any payment after our cut off time on a given day that payment will be considered recieved on the following business day

thanks for the help