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Paid Ahead

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Frequent Contributor

Paid Ahead

I paid my auto loan with USAA for a year.  My originial loan was for 72 months and I didn't notice right away that because of the large payment, my terms dropped down to 59 months paid ahead with the next payment due in a year.    I didn't realize that I  made a regular payment instead of principal only.  Since I'm paid up, should I keeping making regular payments and stay ahead or just refinance into new terms??  

 

APR 4.74%

payment $402 month

 

It is kind of nice knowing you don't have to make a payment if you don't want to, even though interest is building month by month if I pay nothing.

Message 1 of 15
14 REPLIES 14
Frequent Contributor

Re: Paid Ahead

Keep paying you never know what may happen in the future and you don't want to take advantage of a good thing and then something happen and you need it!     Plus if you pay it off faster even better if your apr was like 15% or high I would recommend refinancing but for under 5% that is still good and not worth starting over or the hit to your credit refinancing 

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Message 2 of 15
Valued Contributor

Re: Paid Ahead

I would just keep paying as you were.

 

You are still saving interest.  It’s a simple interest loan.

 

Paying ahead is just the lucky side affect.

 

Worse case, you can skip a payment or two if you need to down the road.

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Message 3 of 15
Frequent Contributor

Re: Paid Ahead

Yes it's a good idea to keep paying it but.....

 

If you have any other debt it may make more financial sense to not pay the car loan for a bit and pay off the other debt.  I know this is a slipery slope and dangerous precident but hear me out.

 

If you have $5,000 credit card debt at 17% doesn't it make the most financial sense - biggest saving to pay that off rather than a 4.74% car loan.

 

Of course if the car is upside down it will only get worse but math is math and paying off any higher interest debt will save money.

Message 4 of 15
Frequent Contributor

Re: Paid Ahead

Thanks for the replies and yes it makes sense to pay the higher interest rate debts.  Fortunately this also has immensely helped that upside down situation also!

Message 5 of 15
Regular Contributor

Re: Paid Ahead

Paying ahead is different than interest.  Interest is only paid on the daily unpaid balance..so if you don't make a payment until your next due date, you only pay interest on the balance each day..not the original balance, or anything else.  Auto loans are simple interest.

Message 6 of 15
Frequent Contributor

Re: Paid Ahead

navyItaly - your response confused me I am not sure what point you are making?


Yes an auto loan is simple interest but he is faced with 2 choices.

Continue making payments or skip payments since he paid ahead.  He can do either.

Continuing to make payments (paying ahead) makes sense unless he has other debt at a higher rate than the auto loan.

 

If he can skip a payment each month for a year that payment can be put towards a higher interest credit card.

 

Do you disagree with that?

Message 7 of 15
Frequent Contributor

Re: Paid Ahead

Is there any reason you can't continue making payments? I for one enjoy watching my paid ahead "balance" grow. 




Message 8 of 15
Moderator Emeritus

Re: Paid Ahead

Should always pay off high interest debt before lower interest, though I even just kicked money to a 3.85% auto note the other day because wasn’t sure about beating that return with money in the market as of this point among other reasons.

If you have a pass on the auto loan for a year but you have higher interest debts pay those off before continuing to attack the auto note.

Interesting to see that USAA does work for paying ahead: ideal credit situation is taking that note ahead down to some small amount left and then just let it ride racking up trivial interest while taking the FICO win... and it is a big one if it is your only installment tradeline.



        
Message 9 of 15
Frequent Contributor

Re: Paid Ahead

Whatever you do otherwise, if you don't have any other open installment loans I would hold off on making the last payment until it is due to delay the credit score hit from not having any open installment loans.

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