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mission76
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Car Loan question  Reply with quote  

Sorry if this has been discussed but I didn't see anything using the search.

I bought a Honda in '09 with a 16k loan for 5 years. My loan is up in June '14 and is for 300 a month. In the first 3 years I was making payments of 600-1200 a month and got far ahead of my loan, so far ahead that they didn't require a payment from me for about a year.

I have 19 payments left and owe about 2500 more. Today I got a call saying I'm behind two months in my payments...600$. I called them up and explained that I only owe 2500 more and if the loan is for 19 more months then I should be paying roughly 160 a month now. They explained that I still owe 300 a month. I then said that there should be 9 payments left then rather than 19...again they said no it's 19 more payments. Finally I concluded that I'm basically forced to pay off my loan early to which the rep stated that I basically have no idea how a loan works.

The way I see it, it has to be one of the three options above. Hopefully someone can just explain where my thinking is flawed and why I am totally off point on this. Sorry about the length thanks for any replies
Post Thu Nov 29, 2012 6:46 am
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coaster
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A loan consists of two parts, the financed amount, called the principal, and the financing charge. These are both total amounts. Over the life of the loan, which is a contract between you and the lender to pay back the principal plus the financing charge over a certain amount of time for a certain amount per month, part of the monthly payment is allocated toward paying off the principal and part is allocated toward paying off the financing charge. When a borrower makes extra payments, or payments larger than agreed, then the extra goes toward reducing the principal. It does not go toward reducing the financing. A borrower cannot unilaterally reduce the amount of his/her payments based on having paid down the principal to a point farther than would have been paid down had the normal payments been made for two reasons: the amount is a term of the contract, and one party of a two-party contract cannot change the terms of the contract without the consent of the other party, and the other reason is that the borrower still has to pay the agreed financing costs even though the principal is reduced. You pay the same financing costs until the principal is gone.

It's not clear from your post whether the $2500 balance you gave is the principal balance, or the loan balance. If that's the loan balance, ie principal plus financing, then when you catch up your two missed payments and pay $300 a month, the loan will be paid off in seven months. Not sure where they're getting that 19-month number. You can't keep paying on a loan after all that's been agreed to be paid back has been paid back.

If you have the funds available the easiest way to get out of this would be to just pay off the loan in its entirety. You do that by paying the remaining balance on the principal, plus you'll have to pay the financing charges for the months you paid less. If you can't pay off the loan, then you'll have to catch up the past due payments you're behind on to get the loan back up to "paid as agreed" status. If you don't do that, this will go on your credit history and hurt your credit score by no small amount.

~Tim~
Post Thu Nov 29, 2012 7:45 am
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oldguy
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quote:
They explained that I still owe 300 a month. I then said that there should be 9 payments left then rather than 19...again they said no it's 19 more payments.


They were telling you that you must pay at the contacted rate ($300/m) - ie, they cannot rewrite your loan terms in mid-loan to $160/m, that would require a new contract (a refi). But you will only pay for about 9 more monts, not 19 - they were telling you that you must keep paying at the 19-month-rate ($300/m).

BTW, why were you prepaying in the first place, your rate appears to be less than 5% - I would use the whole 60 months.
Post Thu Nov 29, 2012 3:36 pm
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DarcyDoolette
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What is the difference between a car loan at 4% and a credit card balance transfer at 4%?
Post Tue Dec 04, 2012 7:53 am
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littleroc02us
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quote:
Originally posted by DarcyDoolette
What is the difference between a car loan at 4% and a credit card balance transfer at 4%?


If you default on a car loan they will repossess the car and sell it at the auction for little and sue you for the difference and win. If you default on a credit card they will try to collect and eventually sue you and settle the difference for less.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Dec 04, 2012 4:20 pm
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jerrodmerit
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This loan type entails that you have to put in a security deposit with the bank in order to avail the loan. The deposit will earn an interest, but that will most probably be lower than the rate of interest you are charged as EMI. After the loan is repaid, the deposit will be given back to you.
Post Fri Dec 07, 2012 6:00 pm
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moren
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hi  Reply with quote  

i prefer not to get a car loan because of the present interest rates are sky touching! There are some ways to get a good looking used car by some sellers you can find in craigslist and with small investment to get a new car look is very cheaper way to fulfill your wish
Post Sun Dec 16, 2012 6:07 pm
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CjSantana
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Re: Car Loan question  Reply with quote  

quote:
Originally posted by mission76
Sorry if this has been discussed but I didn't see anything using the search.

I bought a Honda in '09 with a 16k loan for 5 years. My loan is up in June '14 and is for 300 a month. In the first 3 years I was making payments of 600-1200 a month and got far ahead of my loan, so far ahead that they didn't require a payment from me for about a year.

I have 19 payments left and owe about 2500 more. Today I got a call saying I'm behind two months in my payments...600$. I called them up and explained that I only owe 2500 more and if the loan is for 19 more months then I should be paying roughly 160 a month now. They explained that I still owe 300 a month. I then said that there should be 9 payments left then rather than 19...again they said no it's 19 more payments. Finally I concluded that I'm basically forced to pay off my loan early to which the rep stated that I basically have no idea how a loan works.

The way I see it, it has to be one of the three options above. Hopefully someone can just explain where my thinking is flawed and why I am totally off point on this. Sorry about the length thanks for any replies


The math isn't adding up to me.... & it's possible I don't understand how loans work.

Your original loan was for 5 years, opened in '09. Yet here we are 5 years later & you've got a $2500 balance after you've gotten a year ahead. Did you stop making payments for a year?

That doesn't make sense as the lender would have wanted to collect their interest payments during that time.

Unless they've been building up along with late fees. But still that would only 10 payments at $300/mnth
Post Sat Jan 04, 2014 1:20 pm
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coaster
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Please pay attention to the date of the last post; we discourage resurrecting old threads (forum rule); my own policy is usually to delete posts appended to and resurrecting threads more than a year old.

~Tim~
Post Sat Jan 04, 2014 5:30 pm
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