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Accelerate auto loan payments without reducing the length of the loan?

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masscredit
Valued Contributor

Accelerate auto loan payments without reducing the length of the loan?

Is it possible to accellerate auto loan payments to reduce interest and for scoring benefits without reducing the length of the loan? Simular to what is done with a SSL. Might have a car purchase coming up in the next couple years so I'm planning ahead. 

Pre-Credit Rebuild Scores Pre-DC (3/24/22) - EQ - 524 / TU - 519 / EX - 495

Current Scores - EQ - 687 / TU - 663/ EX - 677

SDFCU Secured - $5000 / TD Bank - $5000 / Mercury - $5000 / Capital One Savor One- $5000 / Capital One QuickSiver - $4500 / Ally Master Card - $2800/ Walmart Mastercard - $2250

Andrews FCU SSL $1500
Message 1 of 11
10 REPLIES 10
cashorcharge
Community Leader
Senior Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?

The way an auto loan contract is structured, you can technically make multiple payments in a given period versus one a month and that will lower your overall balance, getting your percentage owed lower faster than the traditional monthly payment schedule.  However, the interest is baked into the loan when you sign so if you don't want to pay it off early....you won't really save anything in interest.  Paying more payments WILL reduce the loan time.  If you have a 60 month term and pay it off in 48 because you've made double payments....you're only real option is to make payments up until you're comfortable and then stop making them.  If you make 1 payment per month, next month a payment is due.  If you make 3 full payments in a given month, the following month you will NOT have a payment due until your loan catches up.  You'll be lowering the reporting percentage and dollar amount owed....you won't be saving any interest...and you could keep the loan the full term if that's your desire.  However, for reporting purposes, I'm not sure of your goal.  Sign 60 months, pay it off in 48, you'll save on some interest and it will close 1 year early.

Message 2 of 11
Kforce
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?


@masscredit wrote:

Is it possible to accellerate auto loan payments to reduce interest and for scoring benefits without reducing the length of the loan? Simular to what is done with a SSL. Might have a car purchase coming up in the next couple years so I'm planning ahead. 


I know Kia/Hyundai financing worked just like an SSL as of 5 years ago.

Don't know if things have changed or not.

Most auto loans do not let you do what you want

 

 

Message 3 of 11
ForwardLooking
Regular Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?

It depends on the lender and the loan contract.  My lender, Ally Financial, allows this and it works similar to what you are mentioning and referencing with the SSL Loan.  However, other lenders, like Upstart, do not allow this and while you are allowed to pay extra, it will not lower your monthly payment for the following months, it will only shorten the loan.  You will have to look at the contract (if you currently have one) or ask about the terms (if youare still shopping for a loan) to know for sure.

Message 4 of 11
sccredit
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?

Most auto loans will allow prepaying months ahead, reducing the balance and putting payments out for long periods. 

Message 5 of 11
masscredit
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?

@cashorcharge  I figured that's how it would work. Never really thought about doing this with an auto loan. With an SSL, some banks allow a person to pay it down without advancing the ending date. That provides them with a loan in their mix and most will pay it down to less than 9% to the best scoring benefit. Hardly any interest would be paid. Oh well, it was a thought...

Pre-Credit Rebuild Scores Pre-DC (3/24/22) - EQ - 524 / TU - 519 / EX - 495

Current Scores - EQ - 687 / TU - 663/ EX - 677

SDFCU Secured - $5000 / TD Bank - $5000 / Mercury - $5000 / Capital One Savor One- $5000 / Capital One QuickSiver - $4500 / Ally Master Card - $2800/ Walmart Mastercard - $2250

Andrews FCU SSL $1500
Message 6 of 11
masscredit
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?

Just saw the other replies and couldn't edit mine. So I guess there are options to do this. I currrently have an SSL to have a loan in the mix. That will be paid off towards the end of next year. Probably around the time I'll be thinking about buying a new car. So I'd like to have a loan for years without having the balance to loan amount high. I was thinking instead of putting down a signifiant down payment (maybe $10K), I'd pay that on the first payment then work on knocking down the balance quickly and hopefully, maintain the origional length of the loan.

Pre-Credit Rebuild Scores Pre-DC (3/24/22) - EQ - 524 / TU - 519 / EX - 495

Current Scores - EQ - 687 / TU - 663/ EX - 677

SDFCU Secured - $5000 / TD Bank - $5000 / Mercury - $5000 / Capital One Savor One- $5000 / Capital One QuickSiver - $4500 / Ally Master Card - $2800/ Walmart Mastercard - $2250

Andrews FCU SSL $1500
Message 7 of 11
cashorcharge
Community Leader
Senior Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?


@masscredit wrote:

Just saw the other replies and couldn't edit mine. So I guess there are options to do this. I currrently have an SSL to have a loan in the mix. That will be paid off towards the end of next year. Probably around the time I'll be thinking about buying a new car. So I'd like to have a loan for years without having the balance to loan amount high. I was thinking instead of putting down a signifiant down payment (maybe $10K), I'd pay that on the first payment then work on knocking down the balance quickly and hopefully, maintain the origional length of the loan.


While I see your goal of matching a traditional auto loan with the repayment structure of an SSL and it looks like 2 others options were offered....I should clarify my comments were aligned to mainstream captive finance banks for auto loans.  In other words, Ford Motor Credit, General Motors Financing, Toyota Motor Finance, Nissan Motor Acceptance, BMW Financial Services, VW Group Auto Finance etc....large manufacturer auto finance programs.  I have no experience with these one-off banks for auto financing.  Traditionally, the best rates for financing or leasing is through a manufacturers captive auto finance arm...like the aforementioned I listed.

Message 8 of 11
CH-7-Mission-Accomplished
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?


@cashorcharge wrote:

The way an auto loan contract is structured, you can technically make multiple payments in a given period versus one a month and that will lower your overall balance, getting your percentage owed lower faster than the traditional monthly payment schedule.  However, the interest is baked into the loan when you sign so if you don't want to pay it off early....you won't really save anything in interest.  Paying more payments WILL reduce the loan time.  If you have a 60 month term and pay it off in 48 because you've made double payments....you're only real option is to make payments up until you're comfortable and then stop making them.  If you make 1 payment per month, next month a payment is due.  If you make 3 full payments in a given month, the following month you will NOT have a payment due until your loan catches up.  You'll be lowering the reporting percentage and dollar amount owed....you won't be saving any interest...and you could keep the loan the full term if that's your desire.  However, for reporting purposes, I'm not sure of your goal.  Sign 60 months, pay it off in 48, you'll save on some interest and it will close 1 year early.


I'm not sure if I'm following you, but you the interest is calculated at simple interest based on the daily average outstanding balance, so paying a loan down/off sooner saves you that interest.   That interest is not "baked into the loan."

I'm on my second auto loan with Alliant CU after having one of their original SSL's (which they stopped offering after all the MyFICO people jumped on them).   With the first auto loan it was for 72 months originally and I paid it "almost" off in 24 months.   The next payment due date was years off into the future, but I paid it down to $50 principal, and after a few months they chose to just "give me a break" and write off the 50 bucks because it was cheaper than servicing the loan for four more years.   I should have not paid it down less than say $500.   I would only be paying interest on the $500 for the remainder of the loan term.  I have a new auto loan with them that is also now paid ahead by about two years and the next payment due date is far off into the future.   Again, interest can only accrue on the current outstanding principal balance -- they can't throw in all the interest up front and make you pay that -- they have to earn the interest.

Also I did a 0% loan for my partner through Nissan about 5 years ago and it worked the same way where by quickly paying down the original loan, the remaining loan with a small principal balance just sat there for years and I would pay like $5/month.   

So both the Allian auto loan and the Nissan dealer financing loan worked exactly like a SSL with the 8.9% hack.

Message 9 of 11
Kforce
Valued Contributor

Re: Accelerate auto loan payments without reducing the length of the loan?


@CH-7-Mission-Accomplished wrote:

@cashorcharge wrote:

The way an auto loan contract is structured, you can technically make multiple payments in a given period versus one a month and that will lower your overall balance, getting your percentage owed lower faster than the traditional monthly payment schedule.  However, the interest is baked into the loan when you sign so if you don't want to pay it off early....you won't really save anything in interest.  Paying more payments WILL reduce the loan time.  If you have a 60 month term and pay it off in 48 because you've made double payments....you're only real option is to make payments up until you're comfortable and then stop making them.  If you make 1 payment per month, next month a payment is due.  If you make 3 full payments in a given month, the following month you will NOT have a payment due until your loan catches up.  You'll be lowering the reporting percentage and dollar amount owed....you won't be saving any interest...and you could keep the loan the full term if that's your desire.  However, for reporting purposes, I'm not sure of your goal.  Sign 60 months, pay it off in 48, you'll save on some interest and it will close 1 year early.


I'm not sure if I'm following you, but you the interest is calculated at simple interest based on the daily average outstanding balance, so paying a loan down/off sooner saves you that interest.   That interest is not "baked into the loan."

I'm on my second auto loan with Alliant CU after having one of their original SSL's (which they stopped offering after all the MyFICO people jumped on them).   With the first auto loan it was for 72 months originally and I paid it "almost" off in 24 months.   The next payment due date was years off into the future, but I paid it down to $50 principal, and after a few months they chose to just "give me a break" and write off the 50 bucks because it was cheaper than servicing the loan for four more years.   I should have not paid it down less than say $500.   I would only be paying interest on the $500 for the remainder of the loan term.  I have a new auto loan with them that is also now paid ahead by about two years and the next payment due date is far off into the future.   Again, interest can only accrue on the current outstanding principal balance -- they can't throw in all the interest up front and make you pay that -- they have to earn the interest.

Also I did a 0% loan for my partner through Nissan about 5 years ago and it worked the same way where by quickly paying down the original loan, the remaining loan with a small principal balance just sat there for years and I would pay like $5/month.   

So both the Allian auto loan and the Nissan dealer financing loan worked exactly like a SSL with the 8.9% hack.


So does Kia/Hyunda.

Message 10 of 11
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