Paying down and structuring auto loan questions

[Cloudlb]

Hi.  I am planning to buy a new car (replacing my current 10 year old car) in the next couple of months. My goal is to put as much down as I can, get the best rate, and pay it off as quick as I can. (Debt is slavery!) 

I'm hoping to put at least $10,000 down on a car worth about $26,000.  This amount does not include the value of my present car, and  I have not decided what to do with it yet (keep, trade in, or try to sell myself). My current TU score is 701 now (at least it was a couple of months ago).  I hope to apply at my local credit union, but will also compare other financing.  I'm very nervous about this, and hope I can get a decent loan. 

I have some questions for y'all:

1) Can I ask for my payments to fall within the second half of the month, regardless of the date I sign the paperwork? 

2) What's the best way to make extra payments on the principal?  Can I make any old extra payments I want? A little extra a month?

3) If I keep my car, and sell it myself later, can I use that money to make a substantial payment on my principal at that time without penalty? 

I realize some of these answers may be specific by lender, but I'd appreciate hearing your opinions. 

[chasmith]

It's been my experience that you should eb able to request a specific due date, there may e an interest amount to pay for the adjustment but most lenders can handle that.

You need to ask very specidific questions about how the loan is structured bfore you enter into the loan agreement, for extra payments.  My Ford Credit loan is "simple interest", and extra goes agaoinst principal (but won't reduce the monthly payment, just shorten the number of months I have to pay).  Some loans aren't as flexible, they may even have prepayment penalties, or require something like full monthly paymnents, or at least payment of full monthly shceduled principal.

With a simple interest loan you should be able to use the sale proceeds from your other car to recude your balance, but be careful.  Remember to maintain an emergency fund somehow, because as I said, you'll reduce the balance owed and the number of payments, but not the fixed monthly payment.

[Cloudlb]

Thanks.  Loan paperwork is tricky! I hope I would be able to spot the penalties and/or they would respond honestly to my questions. 

Ha! 

It's a consideration, because I don't want to get a loan that isn't flexible enough to handle extra payments/paying it down quicker.  I will be sure to ask these questions. 

I have my emergency fund money in a separate account, and will not be using any of that (I hope!) for the down payment money.  Wish I had enough saved just to pay cash, but this will work okay for me now. 

[mygoal750]

regarding your question on payment due dates, I was a personal loan officer in a previous life for a savings & loan. Our loans could have the first payment be anywhere from 30 to 45 days after the loan is funded. That would be your regular, monthly payment due date, also.  I recently bought a car, and the loan had the first payment due 45 days from the day I bought the car.  You may not be able to make your first payment until the first payment due date, as it may take up to 3 weeks for the bank/credit union to get the loan into their computer system.  As the previous poster mentioned, auto loans are structured differently. Therefore, additional payments can either be credited to principal or to the next months' payment.  It is better to have additional payments credited to principal, as that will reduce the overall interest you will pay.  Most lenders will accept additional payments either in a lump sum or added to regular payments. for example, if your car loan payment is $250, you may be able to pay anything over $250, with the extra to principal.  But, again, check with your lender.  Several years ago, I had a car payment that I was paying extra on, with a notation on the payment coupon that the extra was for principal reduction.  The bank kept accepting my payments, but they were applying the additional to the following months' payment.  I admit I didn't ask them about it - but certainly was surprised when I got a letter about 8 months before I planned on paying it off that my final payment due that month was $25.!!  when I called to ask about it (I assumed it was a mistake), they said the extra payments had been applied to the next months' payment rather than principal because "they just didn't do that".  but, now that I am older and wiser -thanks to myfico.com for the wiser part! - I read the loan documents on my new car very carefully!

[Cloudlb]

Does it always spell that out in the loan docs (where extra payments go), or do some just leave it out unless you ask specifically?