Finance - advance amount

[Sheks]

Hi all,

I have increased my car payment by R3500 in order to reduce the term?

This seemed to confuse the VWFS (VW financial services people), who didn't seem to understand that I wanted the extra money to go towards reducing the term?

Does anyone know if you have to contact them once enough "advance" cash has been saved up to get them to allocate this to the outstanding capital balance? And do I incur any penalties for settling early?

T.I.A

 

[Sinbad]

As long as your monthly instalment didn't go down, your advance payment will reduce the term. For early settlement, just give them 3 months' notice and you'll not incur any penalties.

 

[Solmonster]

Are you reducing the term or planned to reduce the loan (capital). As far as my knowledge if you pay additional towards the capital portion you'll save on the interest but still pay the same terms. If you want to reduce the terms then new calculations should take place (for new monthly installments).

 

[Sinbad]

Are you reducing the term or planned to reduce the loan (capital). As far as my knowledge if you pay additional towards the capital portion you'll save on the interest but still pay the same terms. If you want to reduce the terms then new calculations should take place (for new monthly installments).

"term" refers to the duration of the agreement.

 

[gfmalan]

If you just transfer the money without them knowing, then they would see it as early payment on your monthly installment.

With Standard Bank my vehicle account is linked on internet banking, and if I pay directly into that account it goes off against principle debt.

VW Finance use to be Wesbank, so if you are banking with FNB, I assume they can link it the same way, and that doesn’t affect the agreed amount per month.

 

[Sheks]

As long as your monthly instalment didn't go down, your advance payment will reduce the term. For early settlement, just give them 3 months' notice and you'll not incur any penalties.

Aah ok, thanks - they just seemed confused by what I'd asked them to do. Struggled to calculate the remaining term with the extra amount.

 

[Sheks]

If you just transfer the money without them knowing, then they would see it as early payment on your monthly installment.

With Standard Bank my vehicle account is linked on internet banking, and if I pay directly into that account it goes off against principle debt.

VW Finance use to be Wesbank, so if you are banking with FNB, I assume they can link it the same way, and that doesn’t affect the agreed amount per month.

Discussed and agreed the increased monthly amount with them on the phone - thanks, I just want to make sure I'm maximising putting the extra cash in.

As I understand it, you earn interest by having the advance amount sit there, and when you want to settle early you have to call.

 

[Sinbad]

Discussed and agreed the increased monthly amount with them on the phone - thanks, I just want to make sure I'm maximising putting the extra cash in.

As I understand it, you earn interest by having the advance amount sit there, and when you want to settle early you have to call.

Correct. Each month you'll see an interest rebate on your statement.

 

[handyman007]

With ABSA, if you pay in more than you need to, your monthly installment will come down. If you want to reduce the term, you need to phone them.

 

[3WA]

As I understand it, you earn interest by having the advance amount sit there, and when you want to settle early you have to call.

Yes, BUT, check your terms and conditions carefully. Very sneakily, some loans are structured so that the interest you "earn" is less than the % interest on the loan. That is, your loan interest rate could be 13% and your extra payments only save you 9%. This is why it's a good idea to phone in and capitalise the extra payments from time to time.

 

[SauRoNZA]

Discussed and agreed the increased monthly amount with them on the phone - thanks, I just want to make sure I'm maximising putting the extra cash in.

As I understand it, you earn interest by having the advance amount sit there, and when you want to settle early you have to call.

Yeah they take the capital balance minus the advance amount and then work out the interest.

However as @Sinbad said some of them are retarded and do this on a rebate cycle instead.

 

[SauRoNZA]

Yes, BUT, check your terms and conditions carefully. Very sneakily, some loans are structured so that the interest you "earn" is less than the % interest on the loan. That is, your loan interest rate could be 13% and your extra payments only save you 9%. This is why it's a good idea to phone in and capitalise the extra payments from time to time.

Heh? You don't EARN interest. You simply don't pay as much interest.

There aren't two different values or rates involved, it's one and the same rate with less interest paid overall.

 

[Sinbad]

Yeah they take the capital balance minus the advance amount and then work out the interest.

However as @Sinbad said some of them are retarded and do this on a rebate cycle instead.

huh?
No, it's not retarded.
They just show on your statement the contracted interest as per the scheduled capital balance, and the interest rebate caused by your capital advance...?

 

[SauRoNZA]

huh?
No, it's not retarded.
They just show on your statement the contracted interest as per the scheduled capital balance, and the interest rebate caused by your capital advance...?

That's what I mean that it's still so rigidly aligned with a scheduled contract arrangement and then dynamically updated after the fact.

It's double work.

It should be more like home loans where it's simply calculated daily and on the fly.

 

[cueball]

do I incur any penalties for settling early?

If the original principal amount was under R250,000, no.

 

[3WA]

Heh? You don't EARN interest. You simply don't pay as much interest.

There aren't two different values or rates involved, it's one and the same rate with less interest paid overall.

Okay, I’m curious about this. If you don't mind, can you let me know the error in the calculation below:

These numbers are from a Wesbank statement:

Advance amount: 13,701.91
Rebate: 121.61

So the interest rate of saving on the advance amount would be

[(121.61*12)/13,701.91]*100 = 10.65%

At the time prime was 10% and my car loan was at 11.5%.

Am I doing the calculation wrong? Can others calculate their rebate to match their loan interest rate?

 

[SauRoNZA]

Okay, I’m curious about this. If you don't mind, can you let me know the error in the calculation below:

These numbers are from a Wesbank statement:

Advance amount: 13,701.91
Rebate: 121.61

So the interest rate of saving on the advance amount would be

[(121.61*12)/13,701.91]*100 = 10.65%

At the time prime was 10% and my car loan was at 11.5%.

Am I doing the calculation wrong? Can others calculate their rebate to match their loan interest rate?

The rebate is off the interest already paid and so would account for the days that past between that interest being paid so if there is a delay that could throw it out.

There are however many other fees and time based calculations etc in the mix.

The interest would be calculated off the capital amount minus the advance amount for a new capital balance from which the interest rebate would then be calculated.

So if you original capital balance was 100,000 with 10% per annum interest that would be R10,000.

Now let's say you have 15,000 in advance payments your interest would be 100,000 - 15,000 with 10% which amounts to R8,500.

So then the rebate would be for R1,500 you overpaid.

I'm not exactly sure which calculation they use but it's exactly why I say I wish they would stop the silly rebate thing and just work out the interest "in real time" on the actual capital balance instead of this double calculation they currently do.

So yes strictly speaking your interest saving would be...

Advance Amount * Prime Interest Rate / 12 but that doesn't account for the daily interest calculation and also doesn't account for the rebate system.

 

[3WA]

Thanks. Learned something today.

 

[SauRoNZA]

Thanks. Learned something today.

Don't 100% take my word for it but that is my understanding of it.

The rebate is just a "reversal" of sorts for a previously wrong calculation basically.

What you should therefore check is what your interest subtraction was and if that lines up to the original capital balance.

Then take the advance amount off the capital balance (make sure they don't show you the subtracted value already) and work out the new interest total.

The rebate should amount to that difference between original interest and new interest calculated.