i was recently told by my credit union that i don't have a principle of 30,000 and interest on that amount...i have a principle of 30,000 + interest (total interest is about 8,000). so, my PRINCIPLE is 38,000?!?

can they do that? i've never heard of a loan that factors out the interest and makes it a part of the principle.

if this is true, i'm screwed - that means i can never pay the loan faster and avoid some of the interest.

i guess if it is true and interest rates go way up in the future, at least i've avoided those higher rates....still doesn't seem right though - especially since my dealership didn't explain any of this too me. what do you guys think?

 

yes, it something along the lines in HS algebra doing those principle + interests formula. otherwise, I can't remeber the formula.

that's why you should pay a bit more on the montly payment, so you can reduce you interest on the principle. The same for mortgage but they have a formula called Loan To Value (LTV).

http://www.keystonefunding.com/faq.asp

 

that's if you make the minimum monthly payments. If you were to walk in today and say you want to pay it off, you would only have to pay 30000.

 

not according to the lady at my credit union...she SAYS that the intrest is part of the principle. so if i won the lottery and i went in today to pay it all off, i'd still owe the full 38,000...that's what she SAYS anyway.

do you think i need to talk to someone else there?

 

Do you have the ability to check out the principle online? I am able to check mine everyday if I want. Most banks nowadays have the ability to check it. I suggest trying that if you haven't done it already. Because my bank (online) will let me know what I owe and what the principle is to pay it off on that day. Just a suggestion if you have that capability. If you don't . . . . try someone who has their own desk or the loan specialist. They will let you know what you owe.

 

you just need to ask for your "payoff amount", which includes the remaining principal, interest accrued since your last payment, and early termination fee, if any.

i've never heard of having to prepay your interest if you pay off your loan early.

 

On a "simple interest loan" you would pay for only the amount of interest that you have used. For instance, if you paid off the loan today then you would owe less than the full $38k. So it seems like you don't have a simple interest loan. It seems kind of strange that a credit union would be offering something other than a simple interest loan. Maybe the lady didn't know what she was talking about so you might want a second opinion from someone else at the credit union. If you call for your 10 day payoff as someone else recommended, that would let you know.

 

thanks guys - i am going to go back in and talk to someone different. this time i'm taking the papers i signed at the dealership with me so they can look at them and explain this all to me.

 

yes thats strange.

 

Check to see what your finance charge was. If you took out 30k they tack on an additional amount, usually set by a certain percentage that they charge per thousand, and that gets added to your orig principal. So your principle is now 38k... look online at it or on a statement from the bank and you should see something that says total cost of loan and that amount will be the total of your loan, finance charge, and your interest upon payoff, IF, you wait until the loan term is up to pay it off. That number will be much much higher. The difference between that number and your 38k is the amount of interest you will have paid in total.

 

I thought it was against the law to have anything else but a simple interest loan on a motor vehicle. Is this some other kind of loan you have? Are there other things used as collateral?

 

I could be wrong but I don't think it's against the law to have any prepayment penalty or have something other than a simple interest loan. I do believe that there is a law regarding Truth in Lending Disclosure where you have to correctly give the APR even though the note rate is significantly different.

 

Yup. Talk to a manager. It sounds like that lady doesn't know what's she's talking about. I don't think she understands the terminology of principal, interest, and payoff balance. I personally know a loan officer at our local credit union, and she doesn't have a degree or experience in banking or lending. Unless of course, you didn't notice "LOAN AMOUNT PLUS ALL FUTURE INTEREST DUE FOR EARLY PAYOFF" clause on your loan documents.

 

Sounds like you have a "Rule of 78" type of loan versus a simple interest. Rule of 78 loans are bad for the consumer, especially with high interest rate loans. The laws goverening disclosures vary from state to state.

http://www.tiac.net/~mabaker/rule_of_78.html

 

man, you must have some seriously bad interest rate on that loan.

unless you opted for the interest rate that multiplies onto itself every year. What's that called again?