car loan intrest question...

bell · bell's Garage

michelle bought her honda cr-v used about 19 months ago, her payment is always paid on time, just like her last car (a honda civic).
she has been fighting negative equity in her cars for years, meaning there has been some "roll-over" amounts added to the loans, no problem as we knew about it and were getting ahead of it mathematically....or so i thought.

i was reviewing her payment history as we are going to trade it in soon and her current "american honda" loan was supposed to be just like her last one, which when looking at every single payment the same ammount was applied to the principle and the intrest, with er cr-v loan the divide between the princ/intrest is always WAY different month to month.
one month $133 went to the intrest and $341 went towards the principle, then another month $311 went to the intrest and $163 went toward the principle.......
it flips like this every few payments, but averages about $100-$200 going to the intrest......
seems weird and wrong to me, so i'm gathering some knowledge so we can be prepared if there is a problem on honda's part. i'm not sure of the specifics of her loan, but is around 12%.....
doing the math on my end it seems the payoff amount is about $3,000 too high......

second who should i goto first with this possible problem? the dealer? she has spoken to american honda about it and they wouldn't tell her anything usefull so we had them send us a detailed history of what they had in their system......

any help is appreciated

aigel · aigel's Garage

Did you review the loan papers she signed? On a regular loan, the principal will go up slowly, while the interest will go down, over time. Only reason it would jump like that is if i were an adjustable interest rate (with a fixed payment) and open term. Never heard of such a thing.

George

onewhippedpuppy · 03-24-2008, 05:08 AM

Here's an amortization calculator to play with. Something sounds weird though.

Porsche-O-Phile · Porsche-O-Phile's Garage

I'd call them directly, but check your paperwork first. Quite possible there's a clause in there enabling them to change the rate or payment terms at any time without notice (that seems to be more and more common language these days).

It's virtually impossible to ever be "ahead" on a car that's financed. One of the reasons dealerships (and lenders) love it when people have accidents - it usually means a big fat check coming their way to pay off the difference between the "adjusted total loss value" and the note.

Obviously in a perfect world you'd just pay cash for everything, or put a large enough down payment on a vehicle purchase, but since this isn't a perfect world, everything is stacked against people being able to do so (explains why "depreciation rates" are constructed to be so large initially, why vehicle values tend to go to zero within 8 years, trade-in values are typically nothing, etc.) The dealers/lenders want you to be upside-down on the loan if at all possible.

Just something to consider. I'm done financing vehicles thankfully. Well, maybe at some point I'll get another motorcycle but that's at least 4-5 years off and I'll put 1/2 down if/when I do.

3.2 CAB · 03-24-2008, 05:26 AM

It appears that they want the consumer to be "upside down" ASAP! Ba$tards!

onewhippedpuppy · 03-24-2008, 06:46 AM

Now that I've had a couple cups of coffee, I will actually attach the link to the amortization calculator.

http://ray.met.fsu.edu/~bret/amortize.html

I've had one car loan, never again. We paid it off early and swore to always pay cash in the future. My $2k Saab and my wife's $20k SRX aren't anything that will impress the neighbors, but at least we own them.

bell · bell's Garage

thanks for the info, something is definately off here........
when michelle called honda about it the person she talked to was feeding her some bs which made absolutely no sense whatsoever, the person basically had no idea what they were talking about as the explaination changed 2 times.
i've got her loan agreement in front of me and it is a fixed rate just like her last loan.......
being i can get more accomplished face to face as the people on the phone are stupid i think we're going to go into the dealer and raise hell with their finance manager........

the only car loans i've had were through my credit union and have since all been paid off, i would've liked to handle her car financing myself but we were not married at the time...........

Billbo · 03-24-2008, 08:15 AM

I believe the amounts applied towards interest and principal would vary depending on the amount of time since the last payment. If the payments were received on the same day of the month, every month then the amort. schedule should be pretty close.

Tishabet · 03-24-2008, 09:30 AM

Quote:

Originally Posted by Billbo

I believe the amounts applied towards interest and principal would vary depending on the amount of time since the last payment. If the payments were received on the same day of the month, every month then the amort. schedule should be pretty close.

This is typically handled via a grace period, i.e. as long as you get the payment to the company within X days of the due date they will treat it as if they received the funds exactly on time. You are correct, however, that other repayment events such as late/missed payments, underpayments, overpayments etc will cause the schedule to adjust in most cases.

bell · bell's Garage

her payment is always do on the 30th, all of her payments have been made on the 28-30 of each month., and even if it did fluctuate why would it fluctuate as much as a couple hundred dollars one way or the other month to month? when she signed the papers they explained it was the exact same loan as her civic was.....her payment schedule on the civic shows the same consistancy as her cr-v payment history, but the civic interest/principle amount was consistantly within a few dollars month to month......which is how it should be with the cr-v history.

pwd72s · 03-24-2008, 10:09 AM

Dunno if it applies here, but when buying Cindy's Ranger new, the sales manager tried to give us the pitch that we should finance with Ford credit instead of paying cash. That we could make more than 1% in our money market account. They offered "1%" financing. The sales manager added: "Of course, this is the rule of 78". I wonder how many people never asked what that means.

I asked...he said nothing. Cindy, ex bank loan officer, read the credit application form. Then she punched numbers on her financial calculator...
We wrote the check...one payment and it was over.

Oh...the rule of 78? That means you pay the interest up front...nothing goes to the principal until all the interest is paid, and you cannot pay off the contract early without paying all the interest.

"Stealerships" is not a misnomer...Running through all the numbers when back home, we figured we'd have ended up paying around $5,000 more for the Ranger than we did by writing the check. This was in '99...so the Ranger is probably only worth about $5,000 now...

Billbo · 03-24-2008, 10:15 AM

Seems to me the answer is in the contract, it's only math after all. Hopefully it is a painless explanation.

rattlsnak · rattlsnak's Garage

it shouldnt be flip flopping, but most car loans are topsided. meaning the interest is paid more at the beginiing of the term. Like if your payment was $500.00 a month, the first payment would be 100.00 principle-400.00 interest. the mid term payment would be 250.00 -250.00, and the last payment would be 0. interest and 500.00 principle. Thats a standard loan. Thats why people get 'upside down' in car loans. After 3 years of a 6 year loan, you have only paid off 30%.

Tishabet · 03-25-2008, 07:02 AM

Quote:

Originally Posted by rattlsnak

it shouldnt be flip flopping, but most car loans are topsided. meaning the interest is paid more at the beginiing of the term. Like if your payment was $500.00 a month, the first payment would be 100.00 principle-400.00 interest. the mid term payment would be 250.00 -250.00, and the last payment would be 0. interest and 500.00 principle. Thats a standard loan. Thats why people get 'upside down' in car loans. After 3 years of a 6 year loan, you have only paid off 30%.

What you're describing as "topsided" is more commonly called amortization. Check out onewhippedpuppy's link or http://www.myamortizationchart.com/ to see how repayment schedules amortize.

Steve Carlton · 03-25-2008, 08:13 AM

Does the contract say how the interest is calculated? It should be either Simple Interest or Rule of 78s, and I'd expect American Honda Finance to use Simple Interest, as that's the ethical way and their name/reputation is at stake to some extent.

I just called a friend of mine who's worked for a Honda dealer for many years, and he's pretty certain that all their contracts are Simple Interest. If you know the loan parameters- original balance, rate, number of months, and payment, it's easy to calculate the payoff amount after X number of payments.