My Auto Loan

It's been almost 4 years since I got my car. According to the plan I had when I first purchased this car, I was supposed to be done with the payments this May. But... I don't think it's going to happen. I was traveling a lot every year and my trip to Italy last year wrecked my finances. Now that the last year of my graduate program is nearing (aka I won't be able to work at all), I'm kinda getting nervous about still having to pay a large amount of money every month.

Because of this, I made my own auto loan pay off sheet so that I would be able to keep track of my payments and stay close to my goal timeline. I'm still going to shoot for my original plan of paying everything off in May. In front of each "2018", I'm writing in the months of the year, so please fill them out according to your plan.

Here are things I learned for the past 4 years by making payments (must read the last one!):

1. Refinance.
I didn't learn about this until later but there is a minimum amount of debt you have to have in order to apply for a refinance. I always considered refinancing my loan but got too lazy with it. By the time I was looking for a refinancing opportunity, they couldn't offer me anything because the minimum amount of auto loans you had to have was $5,000. So look into your loan contract and consider refinancing it to get a better interest rate.

2. Negotiate.
When I went to my bank, I was going to transfer my auto loan to a federal credit union since I heard that they usually offer the lower interest rates and because my bank was not offering an interest rate that was lower than what I already had. BUT you can negotiate with a banker. When I told the banker that I was going to transfer my loan, she said that she would be able to look into something that would offer me a lower interest rate although it was not "officially" offered to everyone. So talk to them! (I wasn't able to get the refinance due to the low amount of debt that I had).

3. Transfer. 
Just like refinancing, look for another option for your car loan. You can look into federal credit unions or another bank. There are many options out there that can offer you a better interest rate. Please research before you go in though, since applications can affect your credit score.

4. Learn: Regular Payment vs. Principal Payment.
There are many things I wished I had googled before I was at the end stage of my car loan. One of them is types of payments in loans. "Regular payment" is a regular payment you are supposed to pay and your regular payment pays off your interest first and then your actual loan. But your principal payment is the amount you actually borrowed and what your interest rate is based on (I didn't know about this until this week?!?).

For example, you owe me 100 apples and your interest rate is 5%, which means your interest is 5 apples the first month. You have to make a payment of 10 apples every month. If you make the regular payment, the 10 apples you pay goes towards your interest first, and then towards the 100 apples you borrowed. In this case, only 5 out of the 10 apples you pay are going towards your actual loan. So now, you owe me 95 apples with a 5% interest rate (which equates to 4.75 apples) for the next month. Got it?

Okay. Then what if you pay me 20 apples the first month instead of 10 apples? Then you are paying me the first month's interest and actual loan and the second month's interest and actual loan. So you paid me 5 interest apples and 5 actual loan apples, then, 4.75 interest apples and 5.25 actual loan apples. Another thing about this is that you don't have to make any payments until the third month.

But if you pay me 20 apples and pay the extra amount to the principal payment, then you are paying the first month's interest, 5 apples, and putting the rest into the actual loan, 15 apples. This leaves you with 85 apples that you owe me. The second month, you will owe me 85 apples with the interest being 4.25 apples. Although you made a payment with extra apples, you still have to pay the second month's payment since the extra was not applied to the next month's regular payment.

If that was too difficult to understand look at the pros and cons of paying extra into regular vs principal payments:
Regular payment:
-pro: you don't have to make a payment until you are actually due since you paid your next month's required payment
-con: you pay more interest overall
Principal Payment
-pro: you pay less interest overall
-con: you have to make monthly payments no matter how much you pay

5. Consider.
Refinancing and transferring your auto loan can affect your credit score. I'm not sure how much of an effect this has on your credit score. This is one post I found so far: https://www.supermoney.com/2016/12/refinancing-car-loan-hurt-credit-score/. I will do more research and write a post on it.

Once again, cheers to those of you guys who are as lost as me in this finance game and let's work hard towards our goals!