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Question about Principal Only Payment to TFS

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Established Contributor

Question about Principal Only Payment to TFS

I have an auto loan with Toyota Financial Services, and I'd like to make a sizeable principal only payment. I know I have to mail it in separately, but my question is how will this affect the rest of the loan? Will it recalculate the monthly payment, or will it shorten the length of the term? I'll probably refinance soon anyway, but I'm curious how paying extra will affect it. Thanks!



Aug 2019:

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Regular Contributor

Re: Question about Principal Only Payment to TFS

auto loans by definition are simple interest.  what this means is as follows:  there's no such a thing as "principal payment".  every payment you have to clear the remaining unpaid interest, then the remaining portion goes to principal.  so if you make 2 payments in a day and the first payment clears the unpaid interest, then it will pay down loan.  So if you made a $1000 payment, the first portion will pay the unpaid interest up to that point, and the remaining will pay down the loan..if you made a second payment the same day, it will go to principal..if you pay $500 the next day, the first few cents or couple bucks will pay the interest, the rest will pay the loan down. and no it won't change your monthly payment, will lower what you owe on the car..most likely will mean no payment due for awhile..doesn't necessarily shorten it...just lowers balance...but when the next scheduled payment is due..whenever that is as you may be able to skip some..you have to pay the full amount of the contract.

Message 2 of 3
Established Contributor

Re: Question about Principal Only Payment to TFS

I’m not sure if what you’re saying applies. TFS allows you to make a payment that goes toward the principal only (separate from the monthly payment that is due). So if interest is calculated daily, based on the principal amount I owe, and I reduce that principal, then it should lower the total amount of interest I’ll owe at the end.

As far as making a larger monthly payment, you are right....all it did was reduce the amount of my next monthly payment. But if I do that every month, then eventually one of my payments will be zero and I can skip that month (or I assume I can pay anyway), which also means will reduce my daily interest as well, right?


Aug 2019:

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