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Question
On my simple interest auto loan I pay extra over the set regular payment every month. Does it make a difference in the total interest paid over the life of the loan if I tell the lender to apply the extra to the principal, or does that not matter? They told me it doesn't, but I seem to remember someone telling me once when paying extra to include the instruction "appy extra toward principal". Thanks.
It most certainly makes a difference. By applying it to principal you reduce the overall principal balance by the full amount. However, if you make an additional installment payment than a portion of the extra payment is applied to interest. The reduction in the overall principal should actually decrease your interest expense thus reducing the overall costs of financing. I hope this helps.
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Robert Hanzel
Expertise
I can answer questions regarding most areas of consumer and commercial finance. I have extensive experience regarding various types of loans (commercial, consumer, USDA, SBA 504, SBA 7A, foreign), many investment vehicles, credit, economics, and banking. I am not an expert regarding tax structures and other tax issues and thus would not recommend asking tax related questions.
Experience
Over 11 years Financial, Investigative, and Legal experience including loan review, due diligence, financial analysis, collections, and risk management. I have managed Credit Administration, Loan Administration, Credit Analysis, Credit Review, Liquidation Departments, Collections, and workouts
Organizations
Both the Risk Management Association and the Bank Administration Institute.
Education/Credentials
I have obtained both my Credit Risk Certification from the Risk Management Association and a Loan Review Certification from the Bank Administration Institute.
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