Hello, Friend got a new truck. Price of truck OTD = $45k Down payment at time of finance = $2k ($43k financed) Interest = 6.9% Total for 75 months = $55.5k roughly which means it’s about $10k of ONLY interest. Payment = $710/month
Correct me if I’m wrong but in theory this truck can be paid off tomorrow and my friend pays none of the $10k interest, right? Anyway, my friend has a check that he wants to use of about $23k. My question is: is it better to put the $23k towards the auto loan right now (ensuring that the money goes towards the principal) or is there a better alternative like placing the money in a HYSA and earn about a 5% interest (I know it can fluctuate) and use that account to pay off the debt gradually? He’d be paying a lot more than the minimum monthly as well. I guess the only upside to this is though is having more cash liquid if ever needed.
If you decide to make the payment, make sure it’s applied toward the principle not the interest first. I made the mistake of just making extra or higher payments on a vehicle loan and the bank applied it toward the anticipated interest first. There was no prepayment penalty so I thought I was in the clear to just do so. Yes it shortened the life of the loan and how much interest I total would be paid, but banks will always look after there own …ahem… interests.
Does it even matter if the money goes towards anticipated interest? If the loan is still going you’re going to pay that interest anyway no?