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Old 07-29-2020, 10:29 AM   #54
Xaxas
 
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Drives: 2019 2SS 1LE
Join Date: Mar 2020
Location: Florida
Posts: 103
Quote:
Originally Posted by ember1205 View Post
I've seen this with many lenders. On the one hand, it's completely stupid. On the other, pre-payments are merely setting you up for a smaller future payment or even being able to "miss" a payment. What I have never tried to find out, though, is whether having that money in-hand early does anything to reduce the accruing interest. If not, then it's not a good way to deal with them and the money should just be deposited into your own savings account until you want to make a "bulk" principle payment.
You mean paying before the due date? I read somewhere sometime ago that it does, I'll let you know as I'm making the payments 5 days before due date, but it's been 10 days past due date without my statement.

If you mean if paying more reduces the amount of interest rather than paying the car faster, then it does, I'm pretty sure there is someone more experienced than I am that can give you an explanation that's not an overly gross simplification.

$1000 loan, $200 payment, $100 goes towards interest, $900 left and you get charged interest in this
$1000 loan, $200 payment + extra $50, $100 goes towards interest, $850 left and you get charged interest in this

Or something among those lines, either way, compounding interest is annoying, just playing the same amount split bi-weekly means you will pay less interest over the life of the loan.
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