Financing Financing

[1930]

I've never financed anything before other than my house, I don't like owing money, I worked 7 days a week 12-14 hrs a day for 2 years to pay that off. My payments though remained the same if I remember correctly.

I thought the more you paid the lesser your monthly payments would be?

I intend to pay my tractor off kinda quick, not stupid quick like I did my house cause I'm saving money to build my second home.

As I work the principal down will my payments lessen?

BTW I couldn't pick my tractor up this weekend, I had an animal become sick Thursday night, I thought he was gonna die, I couldn't leave him.

He seems fine now.

Next Friday I will go get it.

Thanks

 

[ericm979]

Check the terms of the loan carefully. Some have prepayment penalties. Most (all?) are structured so your initial payments are mostly interest. Gradually the mix changes to mostly principal at the end. Any extra you pay goes towards the principal. Paying extra one month does not lower the required payment the next month.

 

[1930]

Thanks

 

[Trillium Farm]

It used to be that way, that paying a lump sum would decrease the interest, but no more!
Now they calculate the interest on the whole amount and if later you do make a lump payment this only goes to reduce the principal owed, but no reduction of interest. Big Rip-Off IMO

 

[1930]

My Kubota is zero percent interest, my payments are shy of 300 a month, Id like to see the payments get smaller over time if make larger payments every now and then.

Im a dummy when it comes to paperwork but Im assuming that lets say the tractor is 30gees and it a 7 year or 84 month loan and zero percent interest that what that means........ its 30 gees paid over 7 years or 84 months. no more?

So if I pay an extra 5 gran in there somewhere than Id have a 25000 dollar loan over 7 years or 84 months which would mean my monthly payments would drop?

Is that correct assuming there is no penalty for early pay off?

 

[thekkfan]

With 0% I think that if you pay 5k towards principal at any point, it will just shorten the number of payments due by what you paid early. But will wait for others to chime in.

 

[Trillium Farm]

With 0% I think that if you pay 5k towards principal at any point, it will just shorten the number of payments due by what you paid early. But will wait for others to chime in.

That's how it works, you don't reduce the monthly payment only the length of the loan in time., unless otherwise specified. Didn't use to be like this though!

 

[1930]

I see, clear now, thanks

 

[MaineGuy1]

As been said, dropping a lump sum down on your loan lessons the amount of months but not the amount of the monthly payment. This WILL reduce how much you end up paying if you have an interest loan.

 

[nards444]

It used to be that way, that paying a lump sum would decrease the interest, but no more!
Now they calculate the interest on the whole amount and if later you do make a lump payment this only goes to reduce the principal owed, but no reduction of interest. Big Rip-Off IMO

yes and no. Lets say I borrow 10k, and then decided to do principal only of 1000 bucks for 8 months, loan is paid off if in 8-9 months, I dont owe the interest that would have otherwise accumulated. But you are right that interest that calculated while you have the loan there is nothing you can do about it. But it all depends on the loan too, some will do it like you say, 10k on principal and then say 2k in interest and basically look at as you owing them 12k.

To the OP all loans generally operate the same way these days, with slight variations. But on most loans, the more you pay will not mean a less of a payment, some banks will consider it paid ahead and means you wont have a payment if you dont want to. All the loans Ive had over the last decade had no pre-payment penalties.

One thing is sometimes these loans for equipment can be somewhat predatory, they make buying a 30k machine sound nice at 99 bucks, but usually a lot more to them. Not to get into a finance discussion, but I always advocate for some balance. Got friend that do the cash route but all they do is work, andthat doesnt seem like fun either.