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YoureGrammerIsWorsts t1_j6jx502 wrote

If you borrow $10k at 10% and paid $1k/year, 100% of your payment would be going towards interest. That would be an interest only loan.

Because you don't want to pay this forever, you ask for a constant yearly payment which will eventually get rid of the loan. Now you pay ~$1,175, but since the interest cost ($1k/$1175=85%) stays the same, that means $175 is going towards principal. Next year, you only owe 10% interest on $10k-$175=$9,825*10%=$983. So this time, $1175-$983=$192 is going towards principal. And repeat for 20 years and then the loan is paid off. It goes to show how powerful compound interest is, both positively and negatively.

BTW, if you wanted the interest specific part of your payment to be 5.5% of the overall payment, you would need to pay ~$950 next month. Then the following month, about $850

>Am I essentially paying for expected full-term interest (if I were to make 0 additional payments above minimum monthly payment)?

You need to clarify this portion of your statement: "My monthly payments are "ahead of schedule" by 91 days."

Are you paying future months, or are you applying your extra payments towards principal?

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SupplyChainOne OP t1_j6klkpu wrote

Thank you very much for this breakdown!

I applied my extra payments towards principal.

My loan term is 48mo, forgot to mention that.

Today, I called Hyundai, and they said they could apply the “three months I am over-paid” (91 days) to my principal. Which would bring my account balance to be “current”.

Seems to make sense.. chopping down the principal is best over anything else in the long term.. right? Any reason this ever wouldn’t be the case, if my goal is to pay the least amount of interest on this loan, and as early as possible?

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YoureGrammerIsWorsts t1_j6km6gv wrote

Absolutely you want to be paying that down towards the premium, but you also never want to miss a payment so I just wanted to make sure you weren't counting on those "91 days ahead" as a fall back option if you can't pay any month

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