Advice about refinancing

So heres the deal. I owe 23k on my truck. (some overhead from previous car) Kelly BB has it's worth listed at 16k. I get out of the AF in 8 months. will be going to school. Want to refinance. I know before I do anything I need to get my pricipal down close to what the truck is worth. Called up Toyota, thats who my loan is through. They said since I bought in California I have a simple intrest loan and no matter how much extra I pay a month, it will just push my due date back and will not help me refinance it.....? Should I 1. Pay extra and push my due date back like a year and hope the bank I try will "get it" or 2. Just save up a huge chunk of cash and take it with me to the bank when I ask for refinancing? or.... are ther any other options? Any help would be sweet!

 

Save the huge chunk of cash. It will look better to the bank & show them you are low risk. Since you will be putting money down on the truck sorta speak. It will give you a better chance of getting a low interest rate. And paying extra won't do you any good at the moment, so there isn't a reason to do that.

 

What they told you is TOTAL BS!!!

My husband had a similar deal with his Acura payments. They tried to tell him the same thing.... that paying extra wouldn't be compensated for in the loan.

BULLSHIT!!

He ended up talking to someone at the bank and fighting with them about all this. There's no way in hell they can prevent you from paying on the principal and it should lower your interest towards the end of the payout.

What he ended up doing, was writing 2 separate checks. One check for the standard payment and a separate check for the principal. And he had to specifically write PRINCIPAL on it.

I would call and talk to a loan officer about all this......and make damn sure they don't screw you. You should have every right to pay on the principal which lowers your total interest costs in the end.....

 

As mentioned above, what you need to do is write 2 seperate checks, one for the payment and one for the principal only.

Not sure why its that way with toyota financial but I've heard from a few people and it seems to work, I think its because they are considering it towards your next payment, and banks always take interest off vs applying the additional amount to the principal if that makes any sense.

I noticed after my first payment that was over the payment amount that the next payment was less than the regular amount and the difference was what I had over paid the previous month, but by using 2 checks one saying principal only i don't have this problem any more.

All in all I'd say your better off trying to refi with another bank or credit union and just having that chunk of cash to go with you when you are applying.

 

What I don't understand is how they can put it toward interest, when the balance that month is zero after you make your payment.

Good luck on getting out from under that payment.

 

I also use Toyota Financial. Read your statement (front and back) carefully. There is an option, at least on mine, that you can send them a written letter and request that overpayments go to principle rather than to the next months amount due.

They don't advertise it, but, you can request it anyway.

 

Looking at the statement now. It is on the back side, where the change of address stuff is located. It is in the left hand column under the General: information.

 

Also, it doesnt help you to re-finance unless your credit score is better than what it was when you originally got the loan..keep that in mind.

 

Your "balance" isn't 0...it's whatever remains on the loan.

When you sign a loan the payment you make every month gets divided up- Part of it goes to principle and part to the total amount of interest that you will owe over the life of the loan. They calculate it all out and then charge you an amount to cover that.

Early in the loan- most of your payment pays off interest...As you get closer to the end...More goes towards principle.

Not entirely true...My credit score didn't change appreciably from when I bought my Taco and signed a 7.1% loan to when I re-fi'd my Taco loan and got a 5.85% Just found that my bank had better deals for me. A better credit score will help you get a lower rate...but just by shopping around you may find one.

The two checks/EFTs thing is the way to go...I do it every month.

 

Good to know. Thats what I was told when i inquired to my existing bank about refinancing..maybe I should check other banks..hmm

 

Yeah...I signed with whatever loan company Toyota wrote me with when i bought my truck cause it was easy and it caught me some breaks. Paid about 6 months worth on it to clear the "early payment penatly" and then re-fi'd thru my bank....Got the nicer deal.

But yeah...It's worth shopping around a bit...Same for stuff like insurance and rebate programs...Lots of banks/companies offer the same stuff...but at different prices. Start talking about leaving for another company and stuff starts working out....

 

Hey thanks everyone. My wife told me about the whole two check thing. One as the normal payment and one with "Principal only" writen one it. Can't do anything till this deployment is over other than that. Has anyone combined two auto loans into one? My wife also suggested this. Her scion is through Toyota as well. She does not have any over head on her loan. Would it help to try to refinance them together in one loan and have us both on the loan?

 

EXACTTLY!

At the beginning of every loan - you're paying mostly interest and barely any principal.

The banks are sneaky.....putting extra payments towards your next month. That ensures they get all the interest over the life of the loan (making money for them).

When you actually put money towards principal, that helps eliminate the total interest amount that you are paying (saving you money).

 

Not all loans are structured this way. Auto loans, typically, are very interest heavy at the beginning. This is due to depreciation of the collateral. GMAC or Toyota Financial, who ever it is, wants profit sooner rather than later. Home loans are similar, but not all are as lopsided when it comes to the interest.

Credit Unions will typically have a more balanced interest to principle payoff, as they want a more consistant inflow of profits (interest).

 

Actually they are all like that. It has nothing to do with depreciation. Interest is calculated based on the principle owed (outstanding balance) at the time the payment is due. It's also true for mortgages, student loans, personal loans and credit cards. At the beginning of the loan, you have more principle so the interest portion of the payments are higher. As you whittle away at the principle, the interest portion gets smaller because the amount you owe is less. Given a constant payment amount, more of your payment will go to the principle because the interest portion is smaller. That's also why shorter-term loans are more expensive per month because you're paying a larger portion of principle in your payment but the first payment's interest portion will always be the same given the same interest rate. The only way to get a lower interest portion for your payment is to get a lower interest rate.

It's based on the amortization formula P=A*[(1-(1/(1+r))^n))/r]
where: P is the principal amount borrowed, A is the periodic payment, r is the periodic interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360).

 

This is incorrect. It is dependent on how the interest payments are structured. Some loans have a flat interest rate applied to the total principle upfront and then the same payment through the life of the loan, some have the interest calculated against the outstanding principle, others are compound interest where the interest can accrue upon the outstanding balance as well as interest applied to the original principle (these are shafty loans that should never be taken).

Point is, there are different ways to calculate interest and different loan sources may utilize different methods.