Paying Car Early

[nicole38]

Does paying my monthly car payment early help reduce interest or anything.I'm able to pay my payment about 2 weeks before its actually due and I was just wondering what kind of effect if any it would have?

[Rahaton]

It won't help, and there is a small risk, if you pay too early they might just count it in the previous month. Then the "second" payment will go strait to principal and you will still owe for the month you thought you were paying early. A few years ago--back when we had money--I paid a bunch of bills proactively before going on vacation. A couple of accounts then nicely recorded two payments in one month and then missed payments the next :-(

[StartingOver08]

Does paying my monthly car payment early help reduce interest or anything.I'm able to pay my payment about 2 weeks before its actually due and I was just wondering what kind of effect if any it would have?

It depends upon how the loan was originally set up. For example, if you have a simple interest installment loan, like many car loans, then yes, if you pay two weeks early the amount of total interest paid on the loan will be reduced. Mainly because the interest is calculated on the outstanding balance daily. So if you make your payment early, then you have reduced the outstanding balance by the amount of the principal and the interest is calculated on the smaller principal balance. You can play around with an amortization schedule on bankrate.com to figure out the savings. Most credit unions use this method.

However, there are some finance companies that have a total amount of interest due regardless of the payment date. Or, really a minimum amount of interest due on a note. It can get larger, but not smaller. These are subprime type finance companies. Some of these companies will not even allow you to pay off the note early at all - or you can pay it off, just not save any money doing so.

Look to your note to see how the interest is calculated and how it is applied. That is your best source of accurate information regarding your specific situation.