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The Truck Payment

August 19th, 2013 at 05:28 am

I bought a truck last December. I financed it through our credit union. We hadn't ever financed a vehicle through this credit union. We had carried a credit card, house re-fi, and home equity loan (back in the bad old days when we did home equity loans) through this credit union, but never a vehicle loan. The dealers always beat their rates, typically by 0.1% point. So, I wasn't really sure how the CU worked the loan if paid ahead.

Some months, I've been rounding the $378 minimum payment up to $400. I had been wondering if the minimum due would gradually ratchet down - like $1 less due per month for every $36 that I was paid ahead on the loan (it's a 36 month loan). But, the payment has never been adjusted down at all, which is fine. I wanted to pay AT LEAST $378 per month, and have the truck paid off earlier. I just figured that the CU would make some adjustment to keep me paying on the loan for the full 36 months - more interest income for them.

Last week, I made a substantial payment ahead. I decided to pay 10% of the remaining balance. The remaining balance was $10,220, so I paid $1,022 (About $16 of that payment went toward accumulated interest. Had I been thinking more clearly, I would have increased the payment so that the principal balance had gone down 10%). I went to the CU website this morning just to check if the payment went through. It did. And, yep, the amount due with the next payment remains $378. What changed is the date the payment is due! I don't owe anything on this truck until December 1!

Of course, I plan to make my Sep., Oct., and Nov. payments. We also still haven't decided if we're going to pay this off entirely with the gift money.

Either way, we're hopefully getting ourselves well positioned to pay this truck off, and start saving cash to buy a replacement family van in a few years. I'm not saying we won't finance it, but we will hopefully at least make a substantial down payment.

4 Responses to “The Truck Payment”

  1. creditcardfree Says:

    Fixed loan payments do not adjust down when you make extra payments, like credit cards minimum payments do. I have concern that the extra payment you made has only paid future payments, thus why a payment is not due until December. Not sure, you would need to call. What you want to see is that the interest portion of your payment each month is lower. Can you see this breakdown online?

    You really don't want them using the extra towards future payments. You need to tell them what to do with the extra...specifically apply it to principal. They won't make this assumption because the longer your balance is higher they earn more interest. If the extra is applied NOW to lowering the principal balance then less interest is applied and you will actually pay the loan off earlier.

  2. Bob B. Says:

    CCF - according to the CU web site, before I made the payment the balance was $10,220.15. The balance is now $9,214.76.

    $1,005.39 of my payment went toward principal, and $16.76 went toward interest. My next payment of $378 is due on 12/1/13.

  3. creditcardfree Says:

    They definitely did apply the your payment to the principal balance. I would simply ignore the advancement of the next payment due, which I think is your plan. The CU will make more money in interest if you wait that long to make a payment. We don't want that!! Smile

  4. snafu Says:

    Another voice asking you to call the loans officer at the CU to explain it was your intention to have any extra amount applied directly to the Principal. It was not your intention to make advance payments. The adjustment is easy to change and to your advantage to ask for the correction. Good on you paying 10% more than required payment.

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