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Quick question-delay car payments?

January 30th, 2014 at 08:20 pm

Quick question to all.

No closing time yet

Other stuff.

I pay doublepayments on my car. I am so far ahead I do not have to pay anything at all until 6/2015. Interest rate 3.15. Left to pay .. around $17800. Months left at doublepayments -17.

With the new payment for the house.. I will have a very difficult time saving .. especially once I lose the 2 flat.

I was considerinng stopping payments on the car (total cost of this for a year is a $600 interest charge that will accrue) and instead use the doublepayment amount ($1008) each month to quickly build up my rental emergency fund to $15k and my other emergency fund. With the house payments I want to be as safe as possible.


For those that do not know.. my house payment will be very high (12% hard money lender) for a yearish and then I can refinance out with a normal rate/cost loan.


12 Responses to “Quick question-delay car payments?”

  1. just a thought Says:

    I would definitely stop the car payments (if you're paid ahead) and fund your savings to a level where you will be comfortable. Especially with such a big purchase that will wipe out much (most?) of your savings, I would work to replenish them as quickly as possible.

  2. ceejay74 Says:

    Maybe you could try just doing single payments and see how quickly you can rebuild your EF. If it's not going quickly enough then you could drop even your single payment.

  3. creditcardfree Says:

    I definitely think any way you can increase your emergency fund at this time would be VERY good. This sounds like one way to do so.

  4. Another Reader Says:

    Are you saying the additional money paid was not applied to principal, but is being held by the lender to cover future payments? I have heard of loans like this, but for used cars bought by people with very bad credit. If you are pre-paying payments and can't get out of making all the payments by paying down the principal, then I would not do what you are doing. I would just make the payments as they are due and put the extra money into savings. If they are holding payments and applying them when they come due, then why should you be paying extra interest for skipping payments?

  5. Rachael777 Says:

    clarifying. the car loan is a normal car loan. I have paid doublepayments in an effort to pay it down faster. so I have already shortened the term by more than a year. I have paid so far ahead that the lender does not show any more payments due til 6/2015. If I do not make any payments. my current balance will accrue interest (won't it?) wiping out some of the interest savings of the doublepayments but worst case it will only be $600.. $17500 x 3%.. I feel that using that cash to quickly fund the rental fund to $15k and my personal emergency fund to $18k makes more sense at this time than to get even further ahead on the car.. also I can at least fund by IRA and do some savings.. WHen I refinance I can go back to 'normal' doublepayments and get the car paid off. THoughts?

  6. Another Reader Says:

    It sounds like your lender has not applied these payments to the principal, but instead has set them aside. You should check with your lender to see if you are allowed to pay down principal. If you are, all of that extra money should have been applied to the principal, and I would be raising hell with them. They need to go back and apply those payments to principal when they were received. Your balance over time should have declined faster and you would have owed less interest on the remaining balance. They need to credit you that interest.

    If you are not allowed to pre-pay the principal, then you have paid ahead and are receiving no interest credit for having done so. You could skip all the payments you have prepaid, and in theory, you should not accrue any additional interest.

    NEVER, EVER take a car loan that does not allow you to pre-pay the balance. The effective rate of your loan is much higher if you prepay one of those, because your lender is investing all those extra payments, not you. They still collect all the payments, but they get them earlier.

  7. Another Reader Says:

    BTW, have you looked at the tax implications of the short pay-off? The federal law exempting mortgage debt forgiveness from income tax expired at the end of 2013. IIRC, the forgiven debt may generate a 1099 and you may have state tax ramifications as well. If you haven't discussed this with the CPA, you may want to do that.

  8. Rachael777 Says:

    No tax implications. Filed for Chapter 7 on this loan
    You are right! they were not applying them toward principal. I can call and hvae them do so (regional office). I will call and find out but may not have it all applied (made 16 overpayments) because if it is all applied my payments start becoming due again. Thanks for the catch.

  9. creditcardfree Says:

    I should have caught that interest issue, too. You haven't been saving any interest based on the way they are recording your payments. Considering that you are trying to use future cash to fund your EF, I would see how many months of no car payments you need to reach your minimum fund goals. I would have those be skip months and any remaining be applied as originally intended by you. Don't drag the skipping out. could consider selling the car for cash...or the other one, I believe you have two.

    Why are there not tax implications when you are selling short? Can you tell us more about that?

  10. Another Reader Says:

    Are you getting out from the tax because you can prove insolvency (implied in the Chapter 7)?

  11. Rachael777 Says:

    Banks file a 1099 when they 'forgive a debt'.. since I filed Bankruptcy on this particular loan.. it is not a 'debt' for me . I am not liable for it in the first place.. instead I am voluntarily settling w the bank for the listed amount so no 1099 issued. I filed for BK specifically so if homes went to auction I would not be charged for them or given a 1099 (works for short settlement too!) and also to halt the late pay reporting and allow me to rebuild. My credit is 687.. it was 713 but went down the lsat few months due to credit inquiries .

    I asked lender to apply only $3000 of my overpayment towards principal.. the rest of the overpayment $6000+.. I will let go towards future payments so I can skip payments this year and quickly get those 2 emergency funds to the max..

    I know I have this car to sell but I am 'saving
    it' for worst case so I have something and trying to rebuild funds in the meantime. I did some numbers and can almost fund the rental emergency fund in full ($6500 left to fund) in the next 6 weeks.. and then will start on normal emergency fund..also about $6500 to fund. The other car .. Genesis. is not realistic to drive in the winter either.. it got stuck in the driveway last week. it has an awesome ride but is rear wheel drive.

    My work contract is up 6/13 but they should be letting me know if I am being extended in April and some delays in projects I am on is making that more likely. I will ask for a year extension.

    Thanks for the help!

    Another thing learned (that car loan).. I learn so much here

  12. Looking Forward Says:

    I was going to ask if the extra had been applied to principle, but I see that has been covered already. Smile I would pay the regular monthly payment if you can swing it or at least something just to keep going with the payoff.

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