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Interest Due is going up. I thought it is suppose to be going down.

We have an fixed auto loan that is set to mature June 2012 (basically a year from now). We DO NOT get penalties for paying it off yearly. So have been making payments larger then owed. I've payed so much that they only want from us $26 a month for the last several months, but each month I've been giving them $200. ($200 was the original monthly payment--I just was able to pay more and have greatly reduce the amount due so today I can pay $200 and still be able to have it paid off early).

The one thing I've noticed is even though it's the same amount due every month ($26) the interest they are requiring has gone up the last several months instead of down. For example The interest due this month is $1 more then last month. Over all I'm still doing good and will have my loan paid off early. I'm just confused why the interest due has gone up vs. down. The loan is fixed. So they are not raising the interest rate, just raising the interest due.

I thought with fix loans the interest due goes down as the loan gets closer to maturity date.

 
Anonymous

Asked by Anonymous at 4:09 PM on Jun. 8, 2011 in Money & Work

This question is closed.
Answers (5)
  • I would be confused, too. My understanding is the same as yours. As PP said, the APR is fixed, but the principle is going down so the % of the payment going to interest should be going down, and the % going to principle should be going up.

    I would call the bank to ask them to explain. Either they're right, and will explain it to you, or they are in error (even if it's not effecting you right now) and can fix it.

    One other thing - and it shouldn't be making a difference the way you are talking about, but is good practice to check on - make sure any overage you are paying is applied to the PRINCIPLE and not to the next payment. This makes a BIG difference in how quickly your loan is paid off when you are making excess payments (but even if you your overage was applied to future payments, the interest should still be going down...).

    KateDinVA

    Answer by KateDinVA at 4:18 PM on Jun. 8, 2011

  • The rate..% will stay the same. The interest charged depends on how it is compounded. If it is compounded daily the amount will fluctuate slightly..up in months with 31 days. It could also be affected by the way you make your payments..early..on time..more than the minimum. If you have questions call your bank and they can explain it. Congrats to you for paying more than the minimum..you are saving yourself money! :)
    yourspecialkid

    Answer by yourspecialkid at 4:13 PM on Jun. 8, 2011

  • All of the extra money is going straight to the principal. MOST of the money I'm paying is going to the principal--even though they want $1 more for interest this month then last month, OVER 90% of $200 I'm giving them will go straight to the principal. (Now if I gave them just the $26 they wanted then 75% of that payment would be interest). I'm just confused why I'm seeing the interest rate due go up every month.....It is if no matter what I pay the bank is making sure that I have at least $26 due every month.
    Anonymous

    Comment by Anonymous (original poster) at 4:33 PM on Jun. 8, 2011

  • Normally, a payment pays interest in full and then the remainder to principal. It sounds like they are applying the whole amount to principal and not paying any interest. This is actually to your advantage as long as they are satisfying the next payment due, since interest is charged on the principal balance. I would contact them and ask them for a breakdown of principal and interest on the last several payments made, and verify when the next payment is due.
    dolphincjc

    Answer by dolphincjc at 4:58 PM on Jun. 8, 2011

  • Ditto poster's answer above me.
    tasches

    Answer by tasches at 6:37 PM on Jun. 8, 2011

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