Hello! I’m currently looking to buy a Bolt EV and would qualify for the $7500 next tax season. I’d love to then take that money to reduce the loan payment amount (rather than simply the number of payments). I’ll still be making a down payment, but it’d be great to then use the tax money that way as well.
For what it’s worth, I always thought this was not possible, but this Bankrate article seems to indicate otherwise.
Does anyone know if there are indeed lenders where you can make additional payments towards the principal and reduce your ongoing monthly payment?
The only way to reduce the monthly due amount is to refinance. The article says the says.
Making a large payment, (and ensure that it is only applied to principal), would reduce or eliminate the last few payment (s). E.g. If your payment is $500 a month, and you make an extra $750, your last payment would be gone and second last would be halved.
That was what I thought too, but then lower in the article:
“ 4. Make extra payments when possible
Getting ahead on your car loanwill help lower future monthly payments — or skip them entirely. While many lenders apply extra payments only to interest, you may be able to request yours go directly to the principal.
This will help reduce the total amount you owe. It will also give you some much-needed wiggle room in the future.”
I understand why you’d want to save money on interest, which can be accomplished by simply making a larger payment than the minimum due. And as mentioned this also shortens the term.
Just make sure you ask in advance how to make the payment so the excess is processed as an additional principal payment.
I had to have DCU reapply several payments retroactively because they were just applying the excess toward future schedule payments (“But you don’t have a payment due for another six’s months!” chirped one giddy DCU phone rep).
In the grand scheme the amount of the minimum scheduled payment doesn’t really matter unless you’ve bitten off more than you can (or should) chew.
Every auto loan I’ve had automatically applies excess payments toward principal while also advancing the due date. For example, if your monthly payment is $250, making a $1,000 payment will advance your due date by four months. You can continue to make regular payments, but your balance due will be zero as long as you continue to do so.
You can request a principal only payment that will have the same effect aside from advancing your due date, but there really isn’t an advantage. You just lose the option of skipping future monthly payments. Both options reduce the balance and therefore reduce interest paid.
Key phrase is may reduce the total amount of FINANCE CHARGES you will pay
In DCU’s case, for reasons that only make sense in Credit Union World, only extra payments that were performed by transferring the money from a DCU checking/savings account to the DCU loan are treated as a 100% principal deduction.
Payments I initiated any other way (like pulling from our BoA checking account from the DCU web site) simply pushed the due dates for future payments.
DCU stepped up and was willing to reapply the BoA payments as 100% principal, but I had to call, they had to open a ticket and assign an analyst, and my loan balance was lower after she was finished executing my request.
If you want extra payments applied directly to principal, you should always ask how to do this in order to achieve the result you’re looking for. DO NOT just assume.
is may reduce the total amount of FINANCE CHARGES you will pay