Should I make additional principal payments or split the monthly payment every 2 weeks?

[Creditdummy123]

Hey guys I recently signed up to the forum but have been lurking around for quite some time.... Not sure if this topic has come up but it would be great if someone can help me figure this out...

My credit is not that great (630's) but somehow I was approved for Capital one auto loan. My current balance is $26,729.18 after 2 payments of a 72 months loan at 10.85%. Monthly payments are $517 and change.

My original idea was to work on the credit for 6 months and try to refinace for a lower rate. I later though, maybe sending an additional $50 payment for principal only a month will help me pay the loan sooner with less interest. Sent the first $50 payment today... Got impatient and decited to call capital one today to see what refinaning options I had. The rep advised me they don't refinance their own loans and sugested for me to split my monthly payments and make payments every 2 weeks since the interest is calculated on a daily basis and not monthly. In the long run I will save on interest and end up paying off the loan sooner since making 13 payments a year vs 12. Sounds like a good idea to me. What do you guys think??

So now I am thinking... I can pay $258.50 + $25 every 2 weeks for 6 months and try to refinace? If i am not able to get a better rate just continue that until I pay it off??

[Anonymous]

That's an interesting strategy, I wonder if everyone computes it that way.  I have an auto loan at a local CU.  Any idea what the savings would be over the course of the loan by paying bi-weekly?

[Creditdummy123]

It looks like that is just the way everyone calculates it. There are a lot of interesting articles floating around on this. Only thing you have to check is if your loan has a penalty for paying it off early. I am going to give it a try, nothing to lose. This is too good of a trick not to try. I am surprise more people didn't comment. I am sure this forum has rules about posting external links, but I found a really cool calculator that breaks everything down. PM me and I will share it. My results are below:

My loan will be paid off in 4 years and 8 months VS 6 years.

Total interest is $7465 VS $9462 thats a saving of $1997 on interest

According to the report, using biweekly payments is equivalant to refinancing my loan to 8.72% from 10.85%

This sounds too good to be true... It looks like a good alternative to refinance if the credit is bad but have the money to make the payments like me or for any other loan other than 0%

[Anonymous]

I would still suggest refinancing at some point, 26K @ 10% for 72 months is a lot of interest regardless of paying down the principle.

Just by doing what you plan, you could be looking at refinancing after 6 months to a year for  lower APR and shorter term. 

[Creditdummy123]

Yes that is the plan. Going to try to refinace in 6 months. But worse case scenario doing this for the full loan might not be that bad. It would be as if I refinanced the loan to 8.72%. At least it saves a couple of points.

If I am able to refinance, I would probably continue doing the same thing with the new loan. It is just extra savings without really changing too much. 

[KLEXH25]

Good to know! I just got my car but payments haven't started yet. I know I'd like to refinance eventually, but this may be a good way to save money in the meantime and pay off sooner. Would love to see that calculator if you can PM it. Thanks!

---

@Creditdummy123 wrote:

It looks like that is just the way everyone calculates it. There are a lot of interesting articles floating around on this. Only thing you have to check is if your loan has a penalty for paying it off early. I am going to give it a try, nothing to lose. This is too good of a trick not to try. I am surprise more people didn't comment. I am sure this forum has rules about posting external links, but I found a really cool calculator that breaks everything down. PM me and I will share it. My results are below:

My loan will be paid off in 4 years and 8 months VS 6 years.

Total interest is $7465 VS $9462 thats a saving of $1997 on interest

According to the report, using biweekly payments is equivalant to refinancing my loan to 8.72% from 10.85%

This sounds too good to be true... It looks like a good alternative to refinance if the credit is bad but have the money to make the payments like me or for any other loan other than 0%

---

[Creditdummy123]

done! good luck