Monthly Payment Question

[JeepPatriot]

Hello. I just bought a 2008 Jeep Patriot and love it! I took out an $18,000 loan with Capital One Auto Finance and my monthly payments are $300.

If I were to pay off a decent chunk of this loan, say $5000 for example, would I be able to lower my monthly payments accordingly, or would they stay the same? This is my first ever new car and was just wondering.

[DrunkenMonkey1803]

Generally speaking, if you placed a large principal only payment on your loan the monthly payments would stay the same, but your loan payoff date would be sooner. However, if you can refinance your loan through the bank, or through another bank, then it might be possible for you to keep the same final payoff date and lower your monthly payments.

That said, it sounds like you have a really low interest rate on your current loan, which would be hard to match or beat when refinancing. If this is the case then it would be better to put any additional payments into a savings account and use it once you can pay off the loan. This way if something comes up and you need the $300 for something else, you can use some in savings to help out through the month.

['97ventureowner]

Originally Posted by DrunkenMonkey1803

Generally speaking, if you placed a large principal only payment on your loan the monthly payments would stay the same, but your loan payoff date would be sooner. However, if you can refinance your loan through the bank, or through another bank, then it might be possible for you to keep the same final payoff date and lower your monthly payments.

That said, it sounds like you have a really low interest rate on your current loan, which would be hard to match or beat when refinancing. If this is the case then it would be better to put any additional payments into a savings account and use it once you can pay off the loan. This way if something comes up and you need the $300 for something else, you can use some in savings to help out through the month.

First off, I'd check the loan paperwork to make sure you can make extra payments or pay the loan off early, some financial institutions won't let you, or they may assess fees if you do so.
From my experiences, those that accept extra payments can figure your future payments differently. I've had one loan where the payment amount stayed the same irregardless of the extra monies applied to the loan. Another loan I had , there would be a different payment amount (lower) for the next billing cycle and subsequent cycles thereafter until the extra amount evened out the balance. It's hard to explain it in a way that makes sense, but if I made an extra payment equal to one month's payment, then the following month's amount due would be say $20 less. Then the month after it would be say $17 less and so on until it caught up with the balance of the loan.
Putting money in a savings account may be a good idea, but the only issue I see is that the going interest rate on savings accounts now is a lot lower than the loan rates on car loans. It might do you better to try to pay off the loan sooner, thus saving more money than any interest you would accrue having that extra money sitting in a low rate savings account. You can put a small amount aside in an account, and continue to make extra payments on the vehicle. That way as your vehicle depreciates, you won't get stuck owing more than it's worth.

[JeepPatriot]

Thanks for the responses.

I was surprised to get a 6.3% interest rate on my car loan ($18,000). I am assuming this is a rather good rate, especially considering I wasn't even able to qualify for a credit card three years ago, let alone finance a new car (student loan default).

Since coming clean and restructering my student loan account three years ago, my credit rating has slowly improved (and life in general as well!). Since I've been able to save up a small sum recently, I was wondering if I was able to send in a large payment on my car to lower my monthly expenditures. Looks like I've got some more digging to do before I do so.

Thanks again.

[Ray paulsen]

looks like you signed up for a 6 year term, all major lenders that I know of dont allow monthly car payments beyond whats stated in contract unless it's a personal loan,
you can ask to have the car loan re-financed to $13,000 with same rate you will be paying around $215 - $218 a month.

however I am very sure the lower amount will have a higher interest rate, also you will be charged re-finance cost, The better way to go most likely is a savings account till such time you can pay the loan out in full.

['97ventureowner]

Originally Posted by Ray paulsen

looks like you signed up for a 6 year term, all major lenders that I know of dont allow monthly car payments beyond whats stated in contract unless it's a personal loan,

That's the beauty of going through your local credit union or bank as they tend to be more pliable when it comes to certain aspects of their loans. The credit unions and banks I've dealt with do allow extra payments and paying in advance, (just not paying after the due date where they slap you with a late charge )

[CLS Guy]

Review your agreement with Capital One 'coz some financial institutions offer rebate; perhaps they do too, but check with them first.