Truck Payments: One Large OR Two Small Per Month

[dochawk]

I would double check to see how Ford processes the payments.

This.

In over three decades as an attorney and economist, I've seen plenty of ways of calculating interest, from the simple daily that @belairbrian states this loan is, to putting any excess into the escrow account (typical on mortgages unless you label the excess for principal).

If simple interest, then the sooner your payment posts, the sooner your interest drops. But if you're paying 1.9% and getting 5% on your checking or savings, this isn't getting you anywhere!

And if you're making a lower retirement contribution to pay a 6% loan early . . .knock that off!


(unless you've reached an age where your new contributions rationally go into places paying less than 6%).

But look at your rate, and see how much interest you pay on half a payment for half a month. It may well not cover a postage stamp!

Sponsored

 

[fordtruckman2003]

Pay $1000 all at once. Half the regular payment half additional principal.

The loan is simple interest and interest accrues on a daily basis based on the principal.
The $500 reduction will result in a lower daily balance sooner than waiting 15 days to mak another payment.

This is the way.

Simple interest loans are great and easy to figure out. Keep your payments exactly every 28 days for simplicity and no additional days of interest. Use an additional principal option if available. You should be able to calculate how much interest you are paying every month and watch it drop quickly.


My loan is not with Ford credit and I'm still confused by the math. I've somehow not been charged interest the last few months but principal goes down by my monthly payment. It is supposed to be simple interest, but doesn't behave like it.

 

[Cobra129]

If my monthly payment to Ford is $500 per month and I want to pay $1000 each month, is it better to pay one $1000 payment or pay 2 $500 payments? I suspect two individual payments would be better. Also, do you use the Ford Credit app?

I pay every 2 weeks, the total I pay is more then my payment so knocking off payments.

I pay monthly with an additional 'principal' payment monthly. I guess there are so many gimmicks and options to reduce overall interest, I'd also be interested in the best one... Cheers

 

[dochawk]

My loan is not with Ford credit and I'm still confused by the math.

Try an SBA covid loan for oddity.

As near as I can tell, it had no interest for some period, and then interest accumulating but no payments, and now entire payment is applied to the accumulated interest, which does not itself bear interest even though it was more than a year of payments.

?‍

I put money from my cash reserves aside in a separate investment account as I drew upon the loan funds, and it throws off significantly more than the payments. Someday they'll say I'm done.

Oh, and a sidenote: for most loans, putting "excess to principal" in the note field will achieve this.

 

[BMCGC]

This.

In over three decades as an attorney and economist, I've seen plenty of ways of calculating interest, from the simple daily that @belairbrian states this loan is, to putting any excess into the escrow account (typical on mortgages unless you label the excess for principal).

If simple interest, then the sooner your payment posts, the sooner your interest drops. But if you're paying 1.9% and getting 5% on your checking or savings, this isn't getting you anywhere!

And if you're making a lower retirement contribution to pay a 6% loan early . . .knock that off!


(unless you've reached an age where your new contributions rationally go into places paying less than 6%).

But look at your rate, and see how much interest you pay on half a payment for half a month. It may well not cover a postage stamp!

If only people would put the effort into being financially savvy that they put into being savvy with things that have wheels. We would have more millionaires in this country.

$6000 extra payments on a 5% loan saves +/- $300 in interest.

$6000 in an IRA or 401k saves ($720 12% bracket) or ($1320 22% bracket) in taxes.

The $300 will continue saving you 5% every year until the loan is paid.

In addition to the tax savings of $720-$1320, the $6000 will grow +/- 10.7% (S&P 500 historical average) every year until you withdrawal the money and pay the taxes owed.

For 2024, the 12% tax bracket ends at $94,300 for married filing jointly.

I have a spread sheet that tracks all our taxable income. We take the standard deduction. By maxing my wifes 401k and contributing to a traditional IRA we can stay out of the 22% bracket. We are both over 50 and can each contribute 8k to IRA's. After contributing to her traditional IRA, we have about 12k left over to contribute to ROTH IRA's.

The last 15 years, we have deferred about 50k in federal tax and our investments have more than doubled in value.

 

[fordtruckman2003]

Try an SBA covid loan for oddity.

As near as I can tell, it had no interest for some period, and then interest accumulating but no payments, and now entire payment is applied to the accumulated interest, which does not itself bear interest even though it was more than a year of payments.

?‍

I put money from my cash reserves aside in a separate investment account as I drew upon the loan funds, and it throws off significantly more than the payments. Someday they'll say I'm done.

Oh, and a sidenote: for most loans, putting "excess to principal" in the note field will achieve this.

Yeah I dunno what they are doing. I use the standard payment because I want interest to come out of that. Plus another option for additional principal. They have me a month ahead on payment due dates and the last 3 months I've been paying maybe $10 interest each month with rest going to principal. It is certainly odd, and I definitely should be having more go to interest, but I'm not complaining seeing my principal and payoff drop rapidly.

 

[SilverSpur]

If my monthly payment to Ford is $500 per month and I want to pay $1000 each month, is it better to pay one $1000 payment or pay 2 $500 payments? I suspect two individual payments would be better. Also, do you use the Ford Credit app?

Why I made payments I paid them as soon as I got the loan payment information. I always made the payments early and with more than was needed. After 2 years I had already paid off one year of payments. By paying sooner and more often you pay more into the principal. But some loans are different and take all the interest in the first year. All said, the Bi-weekly is better.

 

[UGADawg96]

By maxing my wifes 401k and contributing to a traditional IRA we can stay out of the 22% bracket. We are both over 50 and can each contribute 8k to IRA's. After contributing to her traditional IRA, we have about 12k left over to contribute to ROTH IRA's.

The 8k per person max when over 50 is the cap for all IRA contributions, whether Roth or traditional, or mix of the two. Maybe you mistyped, but you cannot do both 8k each (16k combined) and then another 6k each (12k combined) for a total of 28k in individual retirement accounts each year.

 

[powerboatr]

There is a "Principal" option you can select telling them it is a principal payment.

Yup
That's what I do often
Psy normal payment on time
Then go back in ford credit and select principle payment. Then whatever you send, goes straight to principle
It kills principle balance fast if you are not a zero interest loan
Paying 2 ahead, really does nothing but pay 2 payments and interest
Ford credit is setup to let you painlessly pay principle down fast and zero issues

 

[dochawk]

$6000 extra payments on a 5% loan saves +/- $300 in interest.

as opposed to sitting around, yes.

But if you take it out of an investment yielding 15%, that's a net loss of $600 . . .

I have a spread sheet that tracks all our taxable income.

I have those going back to 1989 or 1990, or at least I did. I'd have to see if they all transferred to my old MacClassic . . .

Anyway, they're quite useful. Mine are organized by the 1040 itself, and pull from my checking spreadsheet to largely fill them out.

But I succeeded in getting almost everything into Roth, so I'll never end up owing income tax again until I inherit in a way that generates income.

I actually have to do gratuitous Roth conversions to increase my income enough to get certain credits (if you don't hit 125% for the dust for the medical insurance fairy, you get involuntarily placed on medicaid!). I haven't itemized sine I paid off the house early 30 years ago!

The last 15 years, we have deferred about 50k in federal tax and our investments have more than doubled in value.

It's tough to extrapolate for 15 years back, as I don't have data on one account earlier than 2015. But up 277% since the end of 2015 (i.e., nearly quadruple). My withdrawals since retirement are about $6k more than was added during that period.

caveat: investing the way I have without the 75 year planning horizon I had would be downright reckless! And what you can do when there is no risk of a zero is significantly different than when you have to worry about it.

Anyway, *if* you in the same bracket while working and retirement, there is a wash between regular and Roth--when you aren't maxing them out. That is, if your choice is between $1,000 into regular, and $800 Roth with $200 taxes, the after-tax amount you withdraw is the same either way. But if you could max out the regular, and still have money to put aside, you effectively get a larger nested by doing all or part as Roth.

Now, if tax rates are going up in the future, you benefit moe from the Roth, whereas if they go down, it might makes more since to take the deduction now and pay later. (and the idea that taxes might decrease in the future strikes me as wishful thinking).

 

[BMCGC]

The 8k per person max when over 50 is the cap for all IRA contributions, whether Roth or traditional, or mix of the two. Maybe you mistyped, but you cannot do both 8k each (16k combined) and then another 6k each (12k combined) for a total of 28k in individual retirement accounts each year.

Correct:

"After contributing to her traditional IRA, we have about 12k left over to contribute to ROTH IRA's."

This year we are putting $30,500 in her 401k, about 4k in her traditional IRA, 4k in her ROTH IRA and 8k in my spousal IRA.

Our gross income -$29,200 (standard deduction) - $30,500 (401k) - $4,000 (Traditional IRA) - $3,000 (capital gains loss) puts us at the top of the 12% bracket.

When I was still working, we were in the 25% tax bracket. With Trumps tax cuts and my reduced income we are now able to stay in the 12% bracket.

 

[BMCGC]

dochawk: Each person's situation and strategy is different. While working, I pushed the tax liability out as far as I could.. When my wife retires next May, we will be able to start rolling over our traditional IRA's into ROTH's and stay in the 12% bracket. Unless the market crashes, we will make that 12% back in 12-18 months, then the rest is tax free.

Taking advantage of the tax code to work in your favor is a little bit of work, a lot of research and making a financial plan and sticking to it. Life moves way to fast, and I have never met anyone that says they have too much money.

 

[dochawk]

dochawk: Each person's situation and strategy is different. While working, I pushed the tax liability out as far as I could..

oh, absolutely. Which is why I put those caveats; my approach would *not* be good for most situations!

When my wife retires next May, we will be able to start rolling over our traditional IRA's into ROTH's and stay in the 12% bracket.

Dancing with brackets is an excellent approach--especially if you're not going to land in lower brackets later.

Taking advantage of the tax code to work in your favor is a little bit of work, a lot of research and making a financial plan and sticking to it.

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.​

Judge Learned Hand, one of the great US legal minds.

And "sticking to it" is a *big* dea! About the most important ting of all.

Folks panic and sell on bad news. The catch is, all of the bad news has been taken into account in the price, and they sell at that price--which locks in the loss! And then they compound things by waiting until good news later is already taken into account, losing that, too!

If you choose a random stock market crash, and then look to ten years later, the best investment you could have made the day before the crash is . . . the market!

When we had the covid crash I started logging daily values for my funds so that I would have them in the future. Not of their values, but as a reminder that markets recover, fast. [ok, I had the advantage of being an ecnomist, and knowing the historical data. But knowing that, and internalizing it, are separate issues. But it's helped to not panic in a couple of the drops since!]

and I have never met anyone that says they have too much money.

I said "Officer, what have I done?"​

He smiled and said, "Boy you're having too much fun"​

​

Too much fun, what's that mean?​

It's like too much money, there's no such thing​

It's like a girl too pretty with too much class​

 

[VRFlyer]

Just pay twice, like I just did this month, in error!

 

[RacerAV]

Average daily interest means if you paid more than one payment a month, EVEN if it's two payments of $250 in that month, for the days between the first payment and the second payment, you'll have saved some interest charges. Paying MORE than your minimum payment is obviously better. BUT if you can't pay more, paying the min. payment in two sums would technically save you money (not letting the interest build up all month, rather than only for two weeks, then a very slightly lower interest charge the next two weeks...

Sponsored