Car prepayment

[s898]

Hi guys, if someone makes an extra payment towards their car loan (bmw finance), will it reduce the monthly instalment?

 

[Tman*]

By default it should reduce the loan term.

Give them a call before making any add hock payments to understand how it will be allocated

 

[neoprema]

Most banks will let you allocate the payment to outstanding capital and then choose to either reduce interest in your installments, or keep the repayment fixed but reduce interest due. The latter has more benefit to you.

 

[BradChin]

Hi guys, if someone makes an extra payment towards their car loan (bmw finance), will it reduce the monthly instalment?

Sometimes it will just sit as a credit until you give the instruction. You may reduce term, reduce monthly installment or even ask for it to be allocated to residual/balloon if you have

 

[BrotherTheresa]

With my last interaction with Wesbank, the additional payments were deducted from the outstanding capital, bit they did not consider this against the monthly repayment. Effectively only reducing the term, and thus saving on interest that way.

 

[Superjakes]

Sometimes it will just sit as a credit until you give the instruction. You may reduce term, reduce monthly installment or even ask for it to be allocated to residual/balloon if you have

This is what is happening in my case - the credit is earning interest (at presumably the contract rate), so it is doing the same thing in the long run. I suppose I can ask them to allocate, but will keep on keeping on for now.

Just remember that payments over and above your agreed repayment is ALWAYS a good idea if you can afford it, as it is effectively reducing capital, since your agreed payment is already addressing the interest amount due. The only catch with vehicle finance is that you won't be able to access cash paid in advance if you would need it later, the way you could do in a home loan with access bond type facility.

 

[s898]

This is what is happening in my case - the credit is earning interest (at presumably the contract rate), so it is doing the same thing in the long run. I suppose I can ask them to allocate, but will keep on keeping on for now.

What's the benefit of keeping it in the credit as opposed to allocating it into the principal? The money is not withdrawable as in an access bond anyway right?

 

[Superjakes]

What's the benefit of keeping it in the credit as opposed to allocating it into the principal? The money is not withdrawable as in an access bond anyway right?

No benefit apart from not doing the extra admin to get them to allocate it to the principle debt.