So for context
- I have an auto loan which does not have early payment penalties.
- I originally got the car with an interest rate of 15.86% at about 25,000
- My current prinicipal balance on my car is about 23700.
For the first month the daily interest was about 10.76 a day. So my first scheduled payment would've been 322 to interest and about 220 to the prinicipal. I decided to pay a week early and saw that only 260 went to interest and 280 went to principal.
This is the how contract words daily interest:
We will figure the Finance Charge on a daily basis at the Annual Percentage Rate on the unpaid part of the Amount Financed
So in theory I could reduce this finance charge paying faster and adding more on top of it.
This has me thinking if I pay a week early or every 2 weeks my entire car payment won't I be putting the majority into the principal and substantially less to interest?
@72jnse wrote:So for context
- I have an auto loan which does not have early payment penalties.
- I originally got the car with an interest rate of 15.86% at about 25,000
- My current prinicipal balance on my car is about 23700.
For the first month the daily interest was about 10.76 a day. So my first scheduled payment would've been 322 to interest and about 220 to the prinicipal. I decided to pay a week early and saw that only 260 went to interest and 280 went to principal.
This is the how contract words daily interest:
We will figure the Finance Charge on a daily basis at the Annual Percentage Rate on the unpaid part of the Amount FinancedSo in theory I could reduce this finance charge paying faster and adding more on top of it.
This has me thinking if I pay a week early or every 2 weeks my entire car payment won't I be putting the majority into the principal and substantially less to interest?
I think you'll find unless you pay a week earlier than you did the previous time for every payment, the interest charges will revert to a more normal P/I split.
By payment every 2 weeks, I mean a full payment. So 540 twice a month.
Here is my rolling track of my payments:
| Statement | Balance | Payment | Posted | New Bal | Interest |
| 19-Oct-2022 | $38,802.00 | $0.00 | N/A | $38,802.00 | $0.00 |
| 15-Nov-2022 | $38,802.00 | $850.61 | 15-Nov-2022 | $38,025.50 | $74.11 |
| 15-Dec-2022 | $38,025.50 | $850.61 | 15-Dec-2022 | $37,252.71 | $77.82 |
| 15-Jan-2023 | $37,252.71 | $850.61 | 13-Jan-2023 | $36,475.80 | $73.70 |
| 15-Feb-2023 | $36,475.80 | $850.61 | 15-Feb-2023 | $35,707.31 | $82.12 |
| 15-Mar-2023 | $35,707.31 | $850.61 | 15-Mar-2023 | $34,924.90 | $68.20 |
| 15-Apr-2023 | $34,924.90 | $850.61 | 14-Apr-2023 | $34,145.77 | $71.48 |
| 15-May-2023 | $34,145.77 | $850.61 | 15-May-2023 | $33,367.37 | $72.21 |
| 15-Jun-2023 | $33,367.37 | $850.61 | 15-Jun-2023 | $32,587.33 | $70.57 |
| 15-Jul-2023 | $32,587.33 | $850.61 | 14-Jul-2023 | $31,801.19 | $64.47 |
| 15-Aug-2023 | $31,801.19 | $850.61 | 15-Aug-2023 | $31,020.00 | $69.42 |
| 15-Sep-2023 | $31,020.00 | $850.61 | 15-Sep-2023 | $30,234.99 | $65.60 |
| 15-Oct-2023 | $30,234.99 | $850.61 | 10-Oct-2023 | $29,435.95 | $51.57 |
| 15-Nov-2023 | $29,435.95 | $850.61 | 17-Nov-2023 | $28,661.64 | $76.30 |
| 15-Dec-2023 | $28,661.64 | $850.61 | 15-Dec-2023 | $27,865.78 | $54.75 |
| 15-Jan-2024 | $27,865.78 | $850.61 | 12-Jan-2024 | $27,068.40 | $53.23 |
| 15-Feb-2024 | $27,068.40 | $850.61 | 16-Feb-2024 | $26,280.57 | $62.78 |
| 15-Mar-2024 | $26,280.57 | $850.61 | 15-Mar-2024 | $25,481.95 | $51.99 |
| 15-Apr-2024 | $25,481.95 | $850.61 | 15-Apr-2024 | $24,685.23 | $53.89 |
Well that was fugly; this is better:
What is unsaid is my first payment was due 05-Dec-2022 and each subsequent due date is the 5th of every month; as you can see, I made my first payment nearly three weeks early (but roughly a month after I bought my Tacoma), and the interest portion of my payment was right in line with other months; had I paid on the actual due date I would have expected to have been charged about $115 in interest instead of the $74.11.
The way I see this, is as long as you avoid paying every month, but instead aim for every 3 weeks.
You can in theory [ and hopefully in practice] be able to keep battling interest in a way that more and more progressively goes to principal.
Fun thinking about it. And mathematically if someone can afford it, another potential way to save money on interest.
@72jnse wrote:The way I see this, is as long as you avoid paying every month, but instead aim for every 3 weeks.
You can in theory [ and hopefully in practice] be able to keep battling interest in a way that more and more progressively goes to principal.
Fun thinking about it. And mathematically if someone can afford it, another potential way to save money on interest.
The thing about interest is not all interest rates are equal; in your case accelerating your payments will help pay down your balance quicker and reduce the interest you ultimately pay, in my case I have absolutely zero desire to pay down my loan any faster than I am. What is the difference? As alluded to above, it is the rate; I managed to snag a loan at 2.49% for 48 months, and yet I have savings and investments paying quite a bit more than that, so it would be dumb for me to put more money into paying down the loan. Your 15.86% interest rate strongly suggests you should either refinance to a lower rate or pay that sucker off as soon as possible.
Oh yeah, I meant for people with credit like me.