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  1. #1
    Banned. timmyquest's Avatar
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    Loan repayment question

    Now that i have a legitimate job, and since i'm living with my father at the moment (thus very few bills), i'm planning on hacking away severely at my student loans.

    I expect to be able to pay off as much as 50% of my private loans this year. My question is, if you make a payment above the minimum payment each month, does that minimum payment subsequently get smaller each next month?

    I know, someone who actually wants to pay their debts off, crazy huh?

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    Quote Originally Posted by timmyquest View Post
    Now that i have a legitimate job, and since i'm living with my father at the moment (thus very few bills), i'm planning on hacking away severely at my student loans.

    I expect to be able to pay off as much as 50% of my private loans this year. My question is, if you make a payment above the minimum payment each month, does that minimum payment subsequently get smaller each next month?

    I know, someone who actually wants to pay their debts off, crazy huh?
    Nope, the minimum payment never changes. Just one day you'll get a bill for $15 as the final payment because you payed the blasted thing off and didn't realize it. It's a great feeling to get that debt out of the way.
    -------

    Some sort of pithy irrelevant one-liner should go here.

  3. #3
    surfrider
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    Look at your loan agreement and payment schedule. Typically, when you pay extra each month, the extra goes towards the principal, not the interest. The monthly payment won't change, but by paying extra principal, you'll be avoiding future monthly payments and their interest payments (as well as paying off the loan faster).

    Also check your loan agreement to see if there are any pre-payment or early pay-off penalties. These usually apply in you pay off the loan in full REALLY early.

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    Banned. timmyquest's Avatar
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    Thanks for the info guys. Fortunately, there is NO penalty for paying my loans off early.

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    Senior Member skiahh's Avatar
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    And make sure you understand your loan agreement. Some loans are set up so that any excess payment goes towards future payments instead of principal. You'll have to ensure they're going to credit any extra money towards principal, otherwise, you'll wind up paying the same amount, just in less time than you agreed to.
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  6. #6
    My tank takes chocolate. FlowerBlossom's Avatar
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    Some student loans have 6 month post-graduation deferments where the govt pays the interest. If you are in this kind of deferment, you can also chip at that principle by starting to pay now rather than waiting for your 6 month deferment to end. The govt will still be paying interest while you pay down the principle.

    As others have warned, read the fine print...they might pull you off the deferment if you start paying early. In which case, you will have to decide if you want to stay in deferment and put the money into savings and send them a big payment for the first payment, or, start paying now and end deferment. Whichever you choose, the sooner you get rid of principle, the lower the total amount of money you'll be paying back.
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    Also, make sure your interest rate you're being charged is more than what you could earn by doing something else with the money. I.e. it might not make sense to pay off a 3% loan quickly when you could be earning 4.5% in a CD/Bond/Whatever.

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    Banned. timmyquest's Avatar
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    Quote Originally Posted by pacificaslim View Post
    Also, make sure your interest rate you're being charged is more than what you could earn by doing something else with the money. I.e. it might not make sense to pay off a 3% loan quickly when you could be earning 4.5% in a CD/Bond/Whatever.
    3% student loan? I WISH!

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    It is what it is Sage23's Avatar
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    Definitely check the loan paperwork. A lot of student loans apply excess payments to future payments. Some will default to future payments unless you notify them in writing that you are applying the excess to principal.

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    Senior Member DannoXYZ's Avatar
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    Another good trick is to do bi-weekly payments rather than monthly. Just divide the monthly amount by 1/2 and send it in every two weeks. The saved interest on the two-weeks early payment really cuts down on your total payments.

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    My financial credo is this, "Out of Debt, Out of Danger!"

    Pay off the loans and be a cash and carry kind of guy! Just my two cents!
    Go raibh an chóir ghaoithe i gcónaí liom!

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  12. #12
    Caustic Soccer Mom apclassic9's Avatar
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    In addition to reading the fine print - CALL your loan servicer. Since you are talking about private loans (as opposed to guaranteed loans), chances are that unless you specificaaly request that excess payment be applied to the principal, the lender will automatically apply the excess to future payments - even if you write on the check to apply it to principal! So, make a payment or two, and then CALL to see what was applied where, and call again to "fix" the payment application - most lenders on these types of loans have thier automated systems set to apply to future payment, and it has to be overridden repeated. Your PRIVATE loan is treated more like a car loan than a guaranteed student loan.

    Loan Guarantee Agencies, on the other hand, are more used to pre-payment, and many will ask at the time of payment what to do with the excess, or have a check box on the payment slip.

    (I'm a student financial aid professional)
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  13. #13
    Senior Member avmanansala's Avatar
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    Wooo Hooo! Just had to chime in, if you can pay off your student loans early do it! I did the standard 10-year pay back plan and have now, this month, paid off my student loan! All that extra money is going toward paying off the credit card debt (hopefully be debt free inside of a year.)

    Do it! Just make sure it gets applied to the principle, not to future payments.
    "Study your math, kids. Key to the Universe." - Gabriel in The Prophecy

  14. #14
    Portland Fred banerjek's Avatar
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    Quote Originally Posted by pacificaslim View Post
    Also, make sure your interest rate you're being charged is more than what you could earn by doing something else with the money. I.e. it might not make sense to pay off a 3% loan quickly when you could be earning 4.5% in a CD/Bond/Whatever.
    Borrowing money so you can invest elsewhere carries some risk. I know my retirement funds are down more than 50% for the year... I would have done better buying a Porsche, getting a roof rack for a new $8K bike, and stuffing the rest in a mattress.

    Quote Originally Posted by apclassic9 View Post
    In addition to reading the fine print - CALL your loan servicer. Since you are talking about private loans (as opposed to guaranteed loans), chances are that unless you specificaaly request that excess payment be applied to the principal, the lender will automatically apply the excess to future payments - even if you write on the check to apply it to principal! So, make a payment or two, and then CALL to see what was applied where, and call again to "fix" the payment application - most lenders on these types of loans have thier automated systems set to apply to future payment, and it has to be overridden repeated.
    +1000

    These folks make money off people who pay interest and the system is set up to keep you paying it. Even if you make it crystal clear your are applying the extra payment to principal, you can expect repeated "mistakes" where they assume you must have just wanted to pay the interest early. You must verify they're doing what you want. I haven't heard of prepayment penalties for student loans, but be sure you read all of your contract carefully.

    I have found that using your bank's bill pay service is FAR more likely to result in your extra payment being applied to interest. Paper checks that clearly indicate what to do, accompanied by a slip of paper clearly indicating your preference is the way to go.

    In response to the OP's original question, your minimum payment never goes down. You can pay off 95% of your loan, and the payment will be the same unless you refinance (which really is paying it off and getting a new loan).

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