Paying off vehicle early

Candystore

Candystore

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We have vehicle finance with ABSA @ an interest rate of 11.50% p/a.

I often read that folks say it is not worth speeding up the payment of the loan.

[ NB: This is on the assumption that there are no penalties for early settlement. ]

ABSA informed me that I can increase the minimum monthly installment, but I am not allowed to split the monthly payment in two. Not sure why.

Any opinions on this?
 
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As far as i know, which is limited i grant you...
Interest is calculated daily, 11.50 / 365 days and that is added on daily base, that is why settlement now will change if you ask next week again. They also nail you with three months of interest if you settle early.
Split in two will be a marginal change.
Push as much money as you can into account. Make sure it goes of the balance, and not let them hold it as seperate payments. heard that they will keep your extra money and use it as payment, not decreasing the balance and therefore same amount of interest.

What i did. I paid my installment of R5000. account balance goes down to R95000 from R100000. interest is calculated daily on the R95000, plus the interest added. Next month pay R5000 the balance goes from R96000 to R91000. ans now i put in extra R15000. the balance drops to R76000 and interest is calculated on that, not the R91000. So it stands to reason that pushing as much as you can into the load will drop the interest component and therefore pay it off earlier. Don't just settle, they love to charge extra for that.

A point of interest, when i bought my house 15 years ago for R650000 my installment was R7000 and the interest was R6000 the first month. So only R1000 went of the capital. The banker told me that if i paid in an extra R1000 right now it is equivalent of a full payment at the end of the month, because the next installment an dinterest woul dalso be roughly equate to R1000 of capital. So i put in a few times that extra R1000 and my payment period shortened. That first year of extra R1000 was almost a whole year off.
Interest is a bastard
 
The sooner you pay immure into it than the minimum payments; the sooner you’ll be debt free and save thousands of rand.
 
Big Rat said:
As far as i know, which is limited i grant you...
Interest is calculated daily, 11.50 / 365 days and that is added on daily base, that is why settlement now will change if you ask next week again. They also nail you with three months of interest if you settle early.
Split in two will be a marginal change.
Push as much money as you can into account. Make sure it goes of the balance, and not let them hold it as seperate payments. heard that they will keep your extra money and use it as payment, not decreasing the balance and therefore same amount of interest.

What i did. I paid my installment of R5000. account balance goes down to R95000 from R100000. interest is calculated daily on the R95000, plus the interest added. Next month pay R5000 the balance goes from R96000 to R91000. ans now i put in extra R15000. the balance drops to R76000 and interest is calculated on that, not the R91000. So it stands to reason that pushing as much as you can into the load will drop the interest component and therefore pay it off earlier. Don't just settle, they love to charge extra for that.

A point of interest, when i bought my house 15 years ago for R650000 my installment was R7000 and the interest was R6000 the first month. So only R1000 went of the capital. The banker told me that if i paid in an extra R1000 right now it is equivalent of a full payment at the end of the month, because the next installment an dinterest woul dalso be roughly equate to R1000 of capital. So i put in a few times that extra R1000 and my payment period shortened. That first year of extra R1000 was almost a whole year off.
Interest is a bastard
Click to expand...
How would I ensure the extra payment goes off the balance? Simply by instructing them in writing to do so? What do you mean by this:
... heard that they will keep your extra money and use it as payment, not decreasing the balance and therefore same amount of interest.
Click to expand...
 
I would assume in writing ask them ti confirm that it will be so.
What i meant...
So your capital is 100000, and your installment is 5000. You want to give a lumpsum of 40000 to bring the capital down to 60000. But what i have heard happe in that they hold your 40 000 side, and each month deduct 5000 from it as an installment. meaning for the next 8 months they do not make a debit order, they deduct from this amount. So you do not score a break from interest.
 
Candystore said:
We have vehicle finance with ABSA @ an interest rate of 11.50% p/a.

I often read that folks say it is not worth speeding up the payment of the loan.

[ NB: This is on the assumption that there are no penalties for early settlement. ]

ABSA informed me that I can increase the minimum monthly installment, but I am not allowed to split the monthly payment in two. Not sure why.

Any opinions on this?
Click to expand...
The only time you don't want to pay off debt quicker is when it's a rental property mortgage. For a car loan you defo wanna pay it off quicker.
 
Candystore said:
How would I ensure the extra payment goes off the balance? Simply by instructing them in writing to do so? What do you mean by this:
Click to expand...
This. Instruct them to do so...since they have been instructed NOT to do so by the bank. In writing and get confirmation back, as well as per telephone.

PS.
Car debt = Bad
House debt = Better
 
Bill Clitnon said:
The only time you don't want to pay off debt quicker is when it's a rental property mortgage. For a car loan you defo wanna pay it off quicker.
Click to expand...

Why pay rentals quicker off? At a stage you will see loss’s change to profit. Before that stage, you buy more property (going more into the red)

The bigger picture, you still make a loss, and Sars refund you for the loss’s
 
You have to contact them to allocate the extra payments. Otherwise it sits there as an advanced payment. Yes, they do this to benefit themselves obviously.
 
I paid a bunch extra in to my Wesbank loan a couple of years back and it reduced the interest accordingly. I don't recall having to tell them anything.
 
Do you still need to inform banks to allocate your extra payment to capital? I remember someone saying by default they will allocate extra payments to Interest due on the contract. you have to specify that you want it allocate to capital so it brings the capital being used to calculate the interest down.
 
Interest charged is also call unearned because it is not a foregone conclusion. All extra payments reduce the principle thus the interest.
 
I paid extra amounts into my car loan . The same interest is calculated monthly then i get
Gaz{M} said:
You have to contact them to allocate the extra payments. Otherwise it sits there as an advanced payment. Yes, they do this to benefit themselves obviously.
Click to expand...
This happened to me. Allocated as advanced amount so they deduct the normal interest on the full outstanding balance then refund me for interest earned on the advanced amount.
 
Apologies for my ignorance. So, for it to work in my interest, I have to instruct them in writing to do the following:

1. Allocate the additional payments
2. Allocate it specifically to the capital portion of the loan.

Is that correct?

Thanks
 
Candystore said:
Apologies for my ignorance. So, for it to work in my interest, I have to instruct them in writing to do the following:

1. Allocate the additional payments
2. Allocate it specifically to the capital portion of the loan.

Is that correct?

Thanks
Click to expand...
Yes. That is, if it does not work that way already. In my experience with SBVAF (many years ago), I just paid a lot extra every month, and the extra reduced the capital amount.
11.5% tax free is a great investment.
 
RonSwanson said:
Yes. That is, if it does not work that way already. In my experience with SBVAF (many years ago), I just paid a lot extra every month, and the extra reduced the capital amount.
11.5% tax free is a great investment.
Click to expand...
Thanks for confirming.
 
Big Rat said:
They also nail you with three months of interest if you settle early.
Click to expand...

Depends on the amount borrowed.

Lenders are only allowed to charge early settlement penalties if the loan amount is R 250k or more.

Any loan under R 250k may not charge any early settlement penalties. If they do, they are in contravention of the Credit Act.


If your loan is R 250k or more, the loan agreement must state any early settlement penalties, and those penalties may not be more than 3 month's worth of interest.

https://www.autotrader.co.za/cars/n...you-pay-off-a-car-finance-contract-early/2938
 
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