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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Rosy on February 01, 2018, 03:26:01 PM

Title: Nitty gritty - car loan interest question
Post by: Rosy on February 01, 2018, 03:26:01 PM
My last car loan was like 19 years ago... so bear with me here. I noticed that the actual interest charged each month and therefore the amount allocated to the principal - is different.

Pmt $ 256.05 mo, interest - 3.49% for 48 mo
Payments are due on the 17th of every month

Date posted
Sep 1, 2017 - Prinicipal $240.73               $15.32
Oct 3, 2017 -                221.73                  34.32
Nov 3, 2017                 223.46                  32.59
Nov 30, 2017               228.25                  27.80
Dec 28, 2017               227.82                  28.23
Jan 24, 2018                229.42                  26.63

What I am really wondering is - if there is an advantage in paying each monthly payment early? Say on the 18th or 19th, since it is always due on the 17th?
It looks to me like I could save a little interest each month, but maybe this is not how it works?

In general, I like automatic payments, but I don't want to give Chase permission to withdraw from my account, so I schedule it myself usually well ahead of time. I thought I saw somewhere that they are charging me 99 cents in interest every day - so maybe I could save a few bucks a month by paying earlier?

Note: I don't intend to make an effort to pay this car off or make double payments, it's a long story and mucked up by helping out family. All I want to do for now is to diligently pay it off and hope somewhere along the line someone else will step in and pay it off.

So - all you smart mustachians what is the answer to my nitty-gritty question?
Any other input that might prove helpful is gratefully accepted - TIA!
Title: Re: Nitty gritty - car loan interest question
Post by: daverobev on February 02, 2018, 08:29:39 AM
Yes, of course - the sooner you pay off any debt, the less interest is incurred. You're effectively just making one extra early payment, and never paying the interest on that amount.

That assumes the loan interest is compounded daily. Here in Canada, for whatever reason, the posted rate for mortgages is done as APR, but the interest is only actually compounded twice a year. I would assume your interest is compounded daily, though.
Title: Re: Nitty gritty - car loan interest question
Post by: Rosy on February 02, 2018, 02:58:47 PM
Yes, it is compounded daily - I saw that in the loan contract. So in effect, I am saving a few bucks a month in interest, by paying it early. It looked that way to me, but I was not sure whether I understood the process correctly.

Title: Re: Nitty gritty - car loan interest question
Post by: Finances_With_Purpose on February 02, 2018, 11:09:34 PM
Yes.  I used to pay my student loans ASAP always because of that.  But it's not worth much effort: the amount you save is truly trivial.  We're talking a few bucks, maybe $20's trivial at that low of rate.