Yes, after making the large payment I would continue to pay extra every month given the interest rate you are at, you should be in a good posiiton as far as LTV after making the lump sum payment to refinance if scores allow it.
Interest is accrued daily, not just at time of payoff. You can calculate your Per Diem by looking online for a calculator, or you can simply call Santander and ask for your payoff as well as the Per Diem.
You are doing the right thing, financially, by putting your tax return towards this high interest loan and bettering your overall situation. Keep on the same path and keep working on your credit so you can avoid this in the future and you will enjoy a lifetime of cheap interest!
Back in my subprime days, I too had a Santander loan that I was desperately trying to get ahead of. There are two ways to do it:
1. Be three months ahead on your loan, and they’ll automatically apply additional payments to your principle. For example, If your payment is $300 a month, you will need to be $900 ahead in payments before any additional payment is applied to principle, and you will still need to make Your regular monthly payments to stay ahead. This means that you pretty much have to make 5 payments (three payments to get ahead, one regular monthly payment, and one payment towards principal) to have just one of those go towards interest. The upside to this method is they do it automatically, and you don’t have to talk to their wretched outsourced customer service.
2. Make the additional payment online, or mail them a check. Once it posts, call them up and tell them they need to apply the payment to the principal balance. Some people have reported that they were able to get Santander to apply the payment to principle by writing a note in the memo field of the check, but I wouldn’t trust that. You may encounter a customer service agent that will try and coax you into using the funds in the pay ahead way outlined above, but you don’t have to.
Even though you had had trouble understanding your finance contract, go through it again. As long as there are no prepayment penalties, there is no harm in making a principal reduction payment.
If you're going for the pay ahead method, just make one large payment that is comprised of your regular monthly payment, the 3 additional payments, and any amount you want to go towards your principal. For example, if your payment was $300 a month, a $1,500 payment would be $300 towards your monthly payment, $900 towards those three future payments, and $300 towards reducing the principal balance.
Going forward, you will need to make one payment that is a combination of your regular monthly payment, plus any additional amount you want to go towards principal.