Pay it off. 1) It will boost your credit when it shows you've paid your car off far ahead of time. 2) It will save you money, 6% on a loan isn't high, but it isn't exactly low either. I know a guy who recently got a car loan at .08%... That's ridiculously low, and if your percentage was like that then I would say by all means to pay it off.You'll be paying nearly $2,300 in interest over the four years, if you can pay it off sooner then you save that much money. That's ~12.8% of the total cost of the car if the car itself is worth $18k!
Interest is what you pay for the use of the borrowed money. So the more you are using (the outstanding balance), the more interest you have to pay.A mortgage loan is typically a self-amortizing loan. That is, the payments are calculated to be such an amount that the level monthly payment consists of a month’s interest calculated on the outstanding principal, plus a payment towards that principal amount. At the beginning, the payments are almost all interest, with very little principal being paid back. Over the life of the loan, as the principal is reduced, there is less interest that has to be applied from the payment, leaving more of the payment to pay down the principal more quickly. (in fact, with a 30-year loan, making regular payments, you pay off approximately one-third of the loan in the first 20 years and the remaining two-thirds in the last 10 years.)The alternative to this would be to have each payment consist of (i) an equal portion of the principal plus (ii) the interest that accrues for that month. For example, with a 30-year loan, the monthly payment woukd be 1/360 of the amount borrowed plus a month’s interest on the outstanding principal balance. However, those payments would not be level payments; the interest (and therefore the payments) would start out high, and decrease each month until the loan is fully paid off.(Theoretically, the payments could be interest-only with a balloon payment at the end of the term. But few if any borrowers would want that, even if the banks would offer it.)
You don't exactly have your details correct: you have missed 2 months and it took you 6 months to catch up, so it's been 6 months of the company reporting you as "not current" to the credit agencies.The damage will continue to be present since it's a current event, and the only way it will go away is with time: when the number of "current payments" will make your "not current" payments seen minor. It's all about numbers, just like the credit usage itself: when you have one loan with a large balance, it's better than when you have multiple smaller loans; and that's because multiple hard inquiries into your credit report will cause your credit score to drop.
Let me answer a question with a question. How would like to receive it?Most insurance companies quote income annuities as monthly payouts, however, you can request other periods: quarterly, semi-annual or annual.Annuities are further categorized as immediate and deferred. When you win the lottery and accept the annuity payout of X$ per year, you receive the first check immediately. If you buy an annual annuity from an insurance company, you can elect to receive your first payment at the end of year one.
“How stupid would it be to take out a loan to pay off a smaller loan and use the extra cash to pay bills?”Very stupid. You are borrowing to pay current expenses. This will make your debt get bigger and bigger until no-one will loan you any more. Then you will have to pay your bills as they come in, including large interest charges on all those loans. Instant poverty and/or bankrupcy.It can make sense to take out a new loan to pay off an old loan. The interest rate on the new loan would have to be less than rate on the old one. Probably at least 2% less, to make it worth paying the re-fi fees. In all other cases, just live below your means and use the remaining income to pay down your debts.Let’s say you owe $10,000. You borrow $20,000, pay off $10,000, and spend the rest on current consumption. Next month, you have to make a payment on the $20,000 loan. That will be twice as big as the payments you were making on the previous loan. You are further behind. Bad plan.Or let’s say you owe $10,000 for 10 years at 8%. You borrow $10,500 for 10 years at 6%, paying off the old loan and paying the $500 re-fi fee. You now owe $10,500 instead of $10,000, but your monthly payments will be $116 instead of $121. Slightly positive but underwhelming: you could do better by cutting out two Starbucks lattes per month.There are many interest rate calculators on the net. For example: Payment Calculator You can play around with these to see if refinancing makes sense.
I bought my house free and clear.Having worked for a real estate development company in the dim distant past, I knew that I was going to want a system that made sure that I saved up enough money to pay property taxes and insurance as they came due.At the time I bought the property, I set up a separate savings account to hold funds until taxes or insurance was due. I arranged an automatic transfer out of my checking account into this account each month for the monthly rate for property taxes and homeowners insurance.When the property taxes are due (in Wyoming it is twice a year with no discount), I transfer the amount of the payment into my checking account and write a check. Similar with my homeowners insurance. I pay homeowners insurance with credit card that gives me cash back, and see that funds from the reserve account are transferred to cover the credit card auto-payoff.
If you have the cash lying around then go ahead and pay as much as you can every month until you get it paid off. No point of saving money every month to pay it off when it looks like their is interest accruing on at least a monthly basis.
While I have never paid off a loan all at once, I always pay off a car load ahead of schedule.Last car load I paid, I did this:Monthly payments were $473/month.I paid the first installment, a couple of days ahead of schedule, to the penny. I did this just to make sure the auto payment system worked properly.The second month, I made two payments, on the Monday after I got paid. I took the loan payment amount, $473, rounded it up to $500, then split it in half. So, in the second month, I made two payments of $250.Making payment every two weeks mean you actually make 26 payments per year, instead of 12, but it’s actually easier on you and your bank account, since you take it out the day after your pay check comes in.And because you are paying a little extra per month ($500 instead of $473) your balance goes down fast.Difference in payments this way:Original plan: 12 x 473=$5,676 per year.My method: 26 x 250=$6,500 per year.But get this, even if you just split the payments in half and make twice as many, you will still be ahead of the regular loan:No extra $ per month, just 26 one-half payments: $236.5 x 26=$6,149Doing this, I paid off my 5 year loan in 4 years and one month.And no, I did not pay all the interest that I would have paid if I paid if off exactly on time. Ask the dealer/loan company to be sure, I always do. Get them to point t out on the contract.As a bonus, paying a loan off early really helps your credit score-mine is over 830.
You can do what’s called a Principal Reduction Modification.Consider for example, you borrowed $200k over 30 years at 3%. 5 years later you pay $85k lumpsum , assuming your principle already reduced by $15k due to your monthly paymentsIf you want to pay off mortgage earlyNow you have a $100k mortgage over 25 years at 3%. You will make the same monthly payment as before but will pay off your mortgage in 15 years instead of 25.If you want lower monthly paymentsWhen your principle is lower, your payments wont unless you do a Principal Reduction Modification (PRM). When you do this, your payments are calcualted such that in 25 years (term left on the loan) your loan will be fully paid off.Contact your loan servicer to inquire.