Ford Financing Question... early pay off.... large payments... payments toward principal only??

[Teezlr]

So I purchased my first car, 2014 Fiesta ST... long story short

I sometimes make large payments like $3,000 at a time

In fear of all my money going towards interest and not towards the principal balance of the car I arranged to have all my payments pay towards the principal.

I need someone who understands finance to help me out.

The loan is a "simple" loan offered from Ford Credit

My goal is to pay the car off in another 12 months, I want my large payments to go towards the principle only and not pay for interest that I'm not using.

I had them go through my account and re-credit about $8,000 of my payments toward principle only, so I was way ahead of payments by 10 months and now I need to make another payment next month.

If you have experience in finance and understand exactly what is going on, ex. first few payments are front loaded with more interest etc. please help me understand the details.

Its very hard to get an idea over the phone with the Ford Credit rep because well.... our interest (no pun) are not mutual... and I don't speak finance (fluently).

So bottom line, am I saving money by having all of my payments go toward principle balance only? I do not want to pay for interest that I am not using and I am pretty sure that I wasn't as interest is calculated daily.... BUT after they made these adjustments I do see my principle balance being lower than previously.... so... what is actually going on?

Can anyone explain? Explain like you would to an 8 year old?

 

[D1JL]

It really depends on the type of loan you have.

FMCC mostly now uses a "Simple Loan".
This means if you borrow $20,000.00 you pay back $20,000.00.
You can pay it off early, with no penalty, but you still pay the full amount.
So paying it off early only gets you out of the payments but does not save you any money.

Credit Unions and Banks normally don't use a simple loan, they use a compounded loan.
Paying this early will save you money, that is if there are no early pay off penalties.


You need to first find out what type of loan you have.



Please be advised that I am NOT a banker.
This is how it was explained to me.
This is why I paid cash.




Dave

 

[Teezlr]

It really depends on the type of loan you have.

FMCC mostly now uses a "Simple Loan".
This means if you borrow $20,000.00 you pay back $20,000.00.
You can pay it off early, with no penalty, but you still pay the full amount.
So paying it off early only gets you out of the payments but does not save you any money.

Credit Unions and Banks normally don't use a simple loan, they use a compounded loan.
Paying this early will save you money, that is if there are no early pay off penalties.


You need to first find out what type of loan you have.



Please be advised that I am NOT a banker.
This is how it was explained to me.
This is why I paid cash.




Dave

Simple thru fomoco

 

[Teezlr]

Simple but Im not sure its as simple as that I understand interest acrews* daily.

But by paying early and all towards principle it seems to work out in my benefit.... anyine work in finance???

 

[D1JL]

Simple thru fomoco

Then you will be paying what you borrowed.
That is what a simple loan is.
The only good thing you have going if you can afford to make larger payments, is the monthly payments stop sooner.
I did this on my 2011 Fiesta SES.



Dave

 

[D1JL]

BTW,
You can check your statement from Ford.
It will give you the payoff amount.
This should be the total amount of your loan less any payments you have made.
It should not be any lower due to interest being reduced.

I hope I am wrong for your sake.
But I don't think so.
And if I am wrong, I need to go talk to my dealer about the payoff of my last car.



Dave

 

[Teezlr]

BTW,
You can check your statement from Ford.
It will give you the payoff amount.
This should be the total amount of your loan less any payments you have made.
It should not be any lower due to interest being reduced.

I hope I am wrong for your sake.
But I don't think so.
And if I am wrong, I need to go talk to my dealer about the payoff of my last car.



Dave

I know right haha... after making those lump sum payments

 

[Teezlr]

BTW,
You can check your statement from Ford.
It will give you the payoff amount.
This should be the total amount of your loan less any payments you have made.
It should not be any lower due to interest being reduced.

I hope I am wrong for your sake.
But I don't think so.
And if I am wrong, I need to go talk to my dealer about the payoff of my last car.



Dave

I checked it, added all my payments up and subtracted the interest so far and they didnt match... maybe Im off

 

[D1JL]

I checked it, added all my payments up and subtracted the interest so far and they didnt match... maybe Im off

Does it match if you don't subtract the interest?
That is just total borrowed minus amount paid so far.
Remember you may have made a payment that is not accounted for yet on the statement.



Dave

 

[Teezlr]

Does it match if you don't subtract the interest?
That is just total borrowed minus amount paid so far.
Remember you may have made a payment that is not accounted for yet on the statement.



Dave

From my understanding you can pay the interest on the back end.... at the end of your agreement.... so with that.... your principle is reduced as fast as possible therefore saving you money. Lower principle... less interest.

 

[Harvick]

Last year Ford had 0% interest or 1.9% @72 months if you opt for the cash back bonus.

Using $25k as an example at 1.9% for 72 months you are only paying about $1400 in interest for the entire loan. At that rate you're better off leaving money in the bank and just making the minimum payments.

 

[Teezlr]

But at 4.9% using 27,500 haha

 

[Harvick]

But at 4.9% using 27,500 haha

In that case I would pay it off early lol because at that end of 6 years you'll be paying $4k in interest.

 

[Teezlr]

In that case I would pay it off early lol because at that end of 6 years you'll be paying $4k in interest.

Thats what Im trying to do and reduce my losses

 

[D1JL]

As I stated, I am not a banker.
So i asked one.

A simple loan is not compounded.
Therefore the agreed amount borrowed has a set amount of interest applied for the term of the loan.
Early pay off does not change anything.

As a matter of fact I am working on a simple loan for $10,000.00 right now and this is the way it is going to be.



Dave

 

[Harvick]

As I stated, I am not a banker.
So i asked one.

A simple loan is not compounded.
Therefore the agreed amount borrowed has a set amount of interest applied for the term of the loan.
Early pay off does not change anything.

As a matter of fact I am working on a simple loan for $10,000.00 right now and this is the way it is going to be.



Dave

As I understand a simple interest rate loan means you are charged interest each month on the amount you owe rather than on the original principle. When your principle gets smaller you pay less in interest and therefore its better to pay it off early. Its the precomputed auto loan that require you to pay the interest first before the principle.

Here's a good explanation.
http://www.consumerfinance.gov/askc...erest-it-whats-difference-between-simple.html

 

[Teezlr]

As I understand a simple interest rate loan means you are charged interest each month on the amount you owe rather than on the original principle. When your principle gets smaller you pay less in interest and therefore its better to pay it off early. Its the precomputed auto loan that require you to pay the interest first before the principle.

Here's a good explanation.
http://www.consumerfinance.gov/askc...erest-it-whats-difference-between-simple.html

Yes and Ford charges the interest daily with their simple loan... for example mine was roughly $3.30 per day interest only

 

[D1JL]

So now we are talking about a Simple Interest Rate Loan and not a Simple Loan; is that correct?



Dave

 

[Teezlr]

So now we are talking about a Simple Interest Rate Loan and not a Simple Loan; is that correct?



Dave

Same difference I'm thinking, the way I figured how to save money was to pay 100% towards the principle. Do not pay the interest... Since part of your payment will go toward the interest and leave your principle higher... You would pay more interest on a higher principle.

That's all!