Unless you’re lucky enough to own your vehicle, you’ll most likely pay off an auto loan. But do you know how much of your monthly payment goes straight into your bank’s pockets?
Your monthly car payment will pay for two things a month: the principal (the actual amount you borrowed) and the interest charged by the lender on the loan.
One way to reduce accrued interest is to make a small additional payment each month. However, what many other people don’t know is that most lenders probably won’t apply the full amount of an additional payment to the principal alone.
A TikToker reaches out to her audience to make them aware of this fact and tell them how to avoid it. Angela (@anggrill) posted her monetary advent on her account on Thursday. Since then, the video has been viewed more than 609,000 times through other people to get information about their auto loans.
To begin with, Angela tells the audience that she intends to pay off her car loan in 4 years, but that she intends to pay it off in less than 3 years.
“If, like me, you need to pay off your car loan faster, listen to me,” he says. “If you have a monthly payment, and I’ll tell you what mine is, it’s $379. . . You’re going to get assessed $379 every month. . . Interest included.
“If I need to make a payment, I’ll do whatever it takes. I’ll make the [$379] every month,” he says. But when you need to make an extra payment, for example for the month of May, make sure you do it and don’t mess it up. “
“I have the Bank of America. La only way I can make the payment [that month] that only applies to the principal is if I call them or pass them with a checkbook,” he says. “If you bring a checkbook, you’ll write them in the little ‘main only’ subject line. If you don’t. . . They will invest this additional cash the following month. “
Angela claims in the video that the first time she made an extra payment on her car loan, she didn’t realize until later that the “extra” payment amount was implemented into her next month’s payment, meaning that the amount covered interest and principal, which only she needed.
“Make sure you follow those steps,” he advises. If you call them, just say, “Hey, I paid $400 in May. I need this to be implemented in the most important thing. “She states, “If they don’t, they’ll just apply, like I said, to the next month [interest and principal payment]. “
“If you apply it only to the principal, [your monthly payment] will literally be significantly minimized and then you’ll pay less interest in the long run,” he says.
Personal Finance Bankrate. com supports Angela’s claims that paying off principal allows you to save money over time, depending on the type of loan you have.
“When you make more bills on principal, you save on interest over time,” he says. “With a single-interest loan, which makes up the vast majority of auto loans, the interest is a percentage of the principal you owe. As you pay off the principal amount, the accrued interest becomes less and less.
However, he also states, “With loans with pre-calculated interest rates, lenders rate interest on your loan payments, so you get less of the prepayment. “
Bankrate also confirms that “many lenders will apply the additional bills to any interest accrued since your last payment, and then apply what’s left to the principal amount. In other cases, lenders would likely apply more budget to next month’s payment.
“It’s like they don’t need me to pay sooner,” TRUCKINGWITOCI (@truckymc8an) wrote in the video’s comments.
Angela replied, “Unfortunately, you’re right:( Banks need us to take as much time as humanly imaginable to repay our loans. But we have to outsmart them!”
One onlooker seemed to be speechless at Angela’s advice and asked, “Isn’t that an unusual sense?How would the cashier know they need you as a manager if they don’t explicitly tell you or write it on their check? »
Angela argued, “It doesn’t make sense! You have to write it down on the memo and double-check the receipt you get to make sure it says “primary only. “
Another viewer added, “I paid more until I realized I wasn’t going to the principal yet to cover the next month’s payment, but I eventually figured it out 🙂 Thanks for sharing four more!”
The Daily Dot reached out to Angela and Bank of America’s email for more information.
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