Updated: Sep 12, 2018
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I recently spoke with a client, that was concerned about the balance of her car not reducing when making extra payments. As I listened to her story, I thought, this happens all too often?
When you choose to pay an extra payment towards a loan be sure that the amount is notated to go towards principal. Principal is the amount you actually borrowed. The interest just jacks up the money the lender receives in exchange for lending you the money.
In the case with the client above, the lender made them pay western union which didn't give the option to apply the payment to principal. Nor did they provide any other payment option. Talk about subprime lending at its best...
What is subprime lending you ask???? The short version is its the type of lending options you have when your credit score is below a 620. If you are in this range you have about 68 million other people with you, according to this FOX news article. Bad credit costs alot of money.
How do you overcome the attack of the never decreasing car loan? Its simple. If you have horrible credit, work on increasing your score with a secured credit card, such as Credit builder card, or open a Self lender to help you improve your credit score. When used responsibly, these account types can put you in a position to refinance your vehicle with a better interest rate. In the event you were scammed off the top, and purchased a car that is too old to refinance, do all you can to pay down the principal. Even if it means you have to call the bank and make sure the payment is applied properly.
Until next time,