Cutting your term in half without extra payments?

[Funky Toyz]

Hi Guys,

Yesterday, while at a work function I met quite a few, different types of people. Anyways one of the many things that stand out for me is what the one guy said while the topic was on car finance.

Not too sure if anyone could confirm but he mentioned the following:

Instead of making monthly payments (as per usual via debit order, eft etc) rather split your monthly payment into 4 and pay your car off weekly. Apparantly in this way you paying directly into the capital and he claims to have reduced the last 8 months he had left on his agreement to 3. Also he says the system is unable to calculate the interest, and therefore one is kind of 'cheating' your way around the interest by 'confusing' the system the finance house uses.

Any views on this? Anyone tried it? I would love to give it go, but if I know it works.

EDIT: Apologies, I posted in the wrong section. Please feel free to move the thread.

 

[BRUCE G]

This sounds very interesting. Sure we have a bank employee on the forum :fencelook: or is it a secret?

 

[Funky Toyz]

This sounds very interesting. Sure we have a bank employee on the forum :fencelook: or is it a secret?

+1

 

[freerider]

:bs:

 

[Raybimmer]

By paying early you do save interest ,same as being 1 payment ahead .

 

[Karthik]

That's clever , now banks are going to notice when every bmw fanatic changes from monthly to weekly , hehe

 

[Twinz]

:locked:

Desperate times desperate measures.

:drink:

 

[freerider]

vehicle finance does NOT work like a bond. Interest is calculated at the onset of the loan. If you make double your monthly payment it will NOT decrease the interest repayment you pay that month, your account will only move into an advanced state.

Unless you are going to settle your vehicle loan, keep your extra money in your own interest bearing account or pay it into your bond instead.

 

[Funky Toyz]

vehicle finance does NOT work like a bond. Interest is calculated at the onset of the loan. If you make double your monthly payment it will NOT decrease the interest repayment you pay that month, your account will only move into an advanced state.

Unless you are going to settle your vehicle loan, keep your extra money in your own interest bearing account or pay it into your bond instead.

So are you saying the weekly thing will work on a bond?

 

[Carbon M3]

If you intend paying extra, you must tell them you want to pay towards the principal amount.

This works well if you intend to pay larger amounts.

 

[freerider]

vehicle finance does NOT work like a bond. Interest is calculated at the onset of the loan. If you make double your monthly payment it will NOT decrease the interest repayment you pay that month, your account will only move into an advanced state.

Unless you are going to settle your vehicle loan, keep your extra money in your own interest bearing account or pay it into your bond instead.

So are you saying the weekly thing will work on a bond?

Paying your bond a few days early every month will also change the amount of interest you have to pay, interest is calculated on the same day monthly, based on the capital amount outstanding.

To give you an idea, my bond is registered for R770k and monthly repayments in the region of R8k, by paying 3 days earlier than I used to pay, my interest cost is almost R100 less per month.

If you intend paying extra, you must tell them you want to pay towards the principal amount.

This works well if you intend to pay larger amounts.

Bear in mind that you will be charged an "admin" fee, because they need to re-calculate the interest based on the new capital amount. This is why it only makes sense to pay larger once off amounts into your vehicle loan instead of a couple hundred extra every month.

 

[FaSTandFurious]

Interesting discussion

 

[Diablo Jnr]

I heard this a few years ago, same applies to your bond. If i recall, it has something to do with the banking system and the date of the month that it starts calculating your interest from. How it works, I can't tell you.

 

[Doomsdaya]

+1 on freerider's posts

 

[Funky Toyz]

vehicle finance does NOT work like a bond. Interest is calculated at the onset of the loan. If you make double your monthly payment it will NOT decrease the interest repayment you pay that month, your account will only move into an advanced state.

Unless you are going to settle your vehicle loan, keep your extra money in your own interest bearing account or pay it into your bond instead.

So are you saying the weekly thing will work on a bond?

Paying your bond a few days early every month will also change the amount of interest you have to pay, interest is calculated on the same day monthly, based on the capital amount outstanding.

To give you an idea, my bond is registered for R770k and monthly repayments in the region of R8k, by paying 3 days earlier than I used to pay, my interest cost is almost R100 less per month.

Makes sense- I guess another way of doing this if you have extra cash is to make extra payments, over and above your normal monthly payment, during the month then? This should then reduce the capital amount and in that way reduce the amount on interest when it does get calculated, say on the 25th. Example,

If I pay a bond of R1000 a month, monthly via debit order on the 25th of each month, with interest calculated on the 24th, and during that month I also make 2 X R500 payments (say on the 26th and 15th) then the interest calculated on the 24th of the following should be less. On top of that, I can make payment early, say on the 20th and it will help toward paying less interest?

Sorry, I'm not in the financial sector so trying to make sense of everything being said really.

---

+1 on freerider's posts

:thumbs:

 

[moranor@axis]

these rats are very clever :rollsmile:

 

[freerider]

vehicle finance does NOT work like a bond. Interest is calculated at the onset of the loan. If you make double your monthly payment it will NOT decrease the interest repayment you pay that month, your account will only move into an advanced state.

Unless you are going to settle your vehicle loan, keep your extra money in your own interest bearing account or pay it into your bond instead.

So are you saying the weekly thing will work on a bond?

Paying your bond a few days early every month will also change the amount of interest you have to pay, interest is calculated on the same day monthly, based on the capital amount outstanding.

To give you an idea, my bond is registered for R770k and monthly repayments in the region of R8k, by paying 3 days earlier than I used to pay, my interest cost is almost R100 less per month.

Makes sense- I guess another way of doing this if you have extra cash is to make extra payments, over and above your normal monthly payment, during the month then? This should then reduce the capital amount and in that way reduce the amount on interest when it does get calculated, say on the 25th. Example,

If I pay a bond of R1000 a month, monthly via debit order on the 25th of each month, with interest calculated on the 24th, and during that month I also make 2 X R500 payments (say on the 26th and 15th) then the interest calculated on the 24th of the following should be less. On top of that, I can make payment early, say on the 20th and it will help toward paying less interest?

Sorry, I'm not in the financial sector so trying to make sense of everything being said really.

---

+1 on freerider's posts

:thumbs:

---

Correct, in fact, if interest was calculated on the 25th, ideally you would want your payment to be effected on the 24th already.

Paying just R100 extra per month on your bond could save you thousands over the loan period.

 

[Doomsdaya]

That is correct, your repayments are accrued and not pre-paid

 

[tyu333]

Gents

I tried the extra payment option and all it did was save me R2401.94 in interest and the car was paid off in 43months instead of 54. Is it worth it, no. The reason I did it was to free up the cash so I would only pay the bond, instead of bond and car. Would I do it again :nonono:
I would say put all that extra money in your bond :thumbs:


Product Type: P/Sale IS linked
Asset Description: BMW 325Ti Compact M
Principal Debt: 116000.00
Capital Adjustments: 0.00
Initial Finance Charges: 39700.67
Additional Finance Charges: -2401.94
Collection/Legal Costs: 0
Total Arrear Interest: 0.00
Amount Paid to Date: 153298.73
Balance as at 01/04/2011 12:00:00 AM: 0.00

 

[Spy007]

Ok I have Just done all this.

Re Car payment. It does not reduce the amount but rather the Time of your car finance.

As for home loan. Mine runs of debit order. But every spare sent i have goes into it. (flexi account) and when I need money and ONLY WHEN i transfer it out at the last minute to the CC or overdraft facility.

I also want and reduced 1 cc from R35k limit to R5
And all others are cut up and cancelled.

Bar my House I am debt free as All these small payments drain finances.

What I did is got a few extra bob on my Bond and settled everything. My bond went up by R1700 a month but Just my car a lone was R2660.

But here is where Discipline comes in. I am still paying the R2600 but instead of on my car I am paying in extra on my Bond. Makes Uge difference on Interest etc. Also as it is a flexi account it IS the easiest way to save money.


It is a good feeling but I think it will only hit me at the end of the month when those Debit orders dont go off anymore and I have more disposable cash.

Doing this i have worked out in disposable income saves me R5500 A MONTH. And since my wife lost her job and Luckily found a half day that pays less, Saved my Ass.

Good luck and GET RID OF THOSE SMALL DEBTS FAST.

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Service Fee
Shortfall Ins
and Interest was R1005 per month out of the R2660 Car payment