New Loan - Early Payments Question

[SecretAzure]

Hi, never posted here before. I'm dabbling with the idea of a new (used) car. It seems I have found the lowest rates at NFCU and Rocket.

My question is the following. I know typically you can pay early but will payments be calculated as a reduction in overall outstanding balance (principal) or will it count as a payment towards your next month's bill?

In the event that this varies wildly, any information you can provide about the above two lenders specifically would be appreciated.

P.S. Not a NFCU member, not in military either if that matters. 

[Loquat]

First I'll say that if you're not military or have some other route, NFCU is out as a lender. Not quite sure how Rocket operates. However I will say that auto loans are simple interest. Your payments may advance your due date but you can ignore such and continue to pay as you want as long as you're at least meeting the scheduled payment monthly.

Some lenders allow you specifically allocate how additional money is applied but even for those that don't, you can continue to pay ahead, reduce your balance thus paying lower interest overall, and obviously paying your vehicle off sooner.

[Anonymous]

2 things to add.

1) I have heard of some subprime loans having a pre-payment penalty now that prevent you from refinancing.  Not sure if that's applicable with your lender or what your scores are.  I am not sure what their restrictions on extra payments are.

2) I have heard this story from a friend but not 100% it's valid but here goes.   He is a wealthy guy and would pay his car loan 6 months at a time then 30 days later would get calls his payment is late.  It seems that lender (don't know who) automatically applied the payment to the back end and another payment was still due eveyr 30 days.  Just make sure you keep on top of it.  I have never had a loan automatically apply it to the back end either it was front end or they asked how I wanted it applied but it would stink to pay 6 months at a time then maybe even end up with a 30 day late.

[dragontears]

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@Anonymous wrote:

2 things to add.

1) I have heard of some subprime loans having a pre-payment penalty now that prevent you from refinancing.  Not sure if that's applicable with your lender or what your scores are.  I am not sure what their restrictions on extra payments are.

2) I have heard this story from a friend but not 100% it's valid but here goes.   He is a wealthy guy and would pay his car loan 6 months at a time then 30 days later would get calls his payment is late.  It seems that lender (don't know who) automatically applied the payment to the back end and another payment was still due eveyr 30 days.  Just make sure you keep on top of it.  I have never had a loan automatically apply it to the back end either it was front end or they asked how I wanted it applied but it would stink to pay 6 months at a time then maybe even end up with a 30 day late.

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I can confirm your point #2. I have an auto loan through a credit union and when I pay more than the normal minimum payment it reduces the principal instead of pushing out the next payment due date, so I have a payment due every month no matter what until it is paid off. 

[dunn2500]

i have always stayed ahead on payments and it even states right on payment where the money is going....either towards next payment or principle......if there is any doubt just call them and ask how they operate

my credit unions its pay next statement.....so i can stay few months ahead and it even says so, if i wanted to make a principal payment i would have to probably call and set that up.....am sure all banks are different but just be clear where your money is going is all

have never had an auto loan with pre payment penalty or refinancing wasnt allowed and been sub prime most of my life.......could be a state by state regulations....( auto dealers will tell you a bunch of bs but doesnt mean its true so sift thru whats actually real vs sales tactic)

they get incentives if you keep the loan for period of time and will tell you have to wait 3- 6 months or etc but not true in alot of cases....

known quite a few who finance thru dealers (at whatever rate) just to get incentives and refinance 1 week or a month later with CU...

[Anonymous]

anything extra you pay will most certainly help you in the overall total interest cost. 

checked with your lender to see if there is a "prepayment penalty" if you pay off the loan early.

my bank (pnc) that financed my last car loan, didn't have any penalty. when you pay extra, (there is a box that says "apply to principal) or something to that effect. make sure you check that box, that way all the extra you are paying will go to principal and pay off the loan more quickly.

best of luck!