We bought a truck financed through Long Beach Acceptance Corps last summer. I always paid $10-$15 more than the min due ($375 was the original pmt amt), and our payments were quickly decreasing each month, so that as I continued to pay that $10-$15 over the ORIGINAL pmt amount (I usually paid $385-$390), more and more was being applied to the principal, and it was GREAT. Our payoff was going to be quickly accelerated. The last pmt I made to LBAC, the min due was only like $360 and I was still paying $385.
Then in January, LBAC was taken over by Americredit. My first statement from Americredit showed the original pmt amount as $375 again. I thought that was a bit strange, but didn't pay much attention & kept paying my higher amount. I've continued to pay the $385-$390 but our min pmt due is no longer decreasing as it was through the old company.
I read the fine print when the contract was bought & it clearly said there would be no prepayment penalty, so I assumed things would go on as before and our min due would decrease each month as before.
Can anyone explain this? Can they do that?? Continue to take our extra $$ and not decrease the amt due every month like LBAC was doing?
Check the principal balance - that should be decreasing by the same amount of your overpayment every month. As long as thats the case, you're not paying a pre-payment penalty: your auto loan will be paid off months earlier than usual (and because how simple interest loans work you'll see a significant reduction in the amount of interest you'll pay over the life of the loan).
It's not mandatory for them to reduce your monthly payment though - your contract agreed that you would pay them at least $xxx per month, just that you could overpay and not be penalized for it.
Every car loan applies extra payments differently which can be annoying. As long as the principal amount is going down faster you are fine.
With some loans extra payments over the Minimum can be split b/t Principal and Interest, but you still get the same benefit. For example if your payment is due on the 30th and your payment with extra money posts on the 25th the previous month the loan company can pro-rate the interest from those 25 days and divvy it up out of your extra principal payment.
Others do it the easy way and just apply every extra penny to principal. It all depends on the financing co.
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