I get this question a lot. Short answer is yes if you can afford it. I encourage paid debts, I really do. But there is a proper way to do it.
I recently spoke with a client, who was concerned because her car loan was not reflecting the extra payments she made. As I listened to her story, I thought, this happens all too often?
When you choose to pay an extra payment towards a loan, be sure that the amount is notated to go towards the principal. The principal is the amount you borrowed. The interest jacks up the money the lender receives in exchange for lending you the money.
Most lenders will apply the notated payment to principle as long as you are current on the note. For instance if your car payment is $400 and you pay $500 then note that $400 is for the payment due and $100 is for principal.
In the case with the client above, the lender made them through pay western union, which didn’t give the option to apply the payment to the principal. Nor did they provide any other payment option. Talk about shady lending practices .
What is subprime lending, you ask? The short version is the type of lending option you have when your credit score is below 620. If you are in this range, you have about 68 million other people with you, according to this FOX news article. Lousy credit costs much money.
How do you overcome the attack of the never decreasing car loan? It’s simple. If you have horrible credit, work on increasing your score with a secured credit card, such as a Credit builder card, or open a Self lender . When used responsibly, these account types can put you in a position to refinance your vehicle with a better interest rate. In the event you were scammed off the top and purchased a car that is too old to refinance, do all you can to pay down the principal. Even if it means you have to call the bank and make sure the payment is applied correctly.
Until next time,