Interest Accrual at Loan Inception

[DaveT]

What is the name of your state (only U.S. law)? NJ

I purchased a car in July 2008; put 20% down and financed the rest for 5 years at 6.65%. I was talked into a warranty and GAP coverage, both of which came with a 30 day cancellation option, and I ended up using it for both, a total refund of $3250. I continued paying the original monthly payment anyway, which should have created an extra $64 in principal reduction every month for the past 3+ years. By my own calculation, I would have made my final payment in either January or February 2012. I was told recently that I owed nearly $1500 more than I thought I should right now, and won't be paid off until next summer (July/August 2012).

The only possible explanation I can come up with is that they accrued the entire 5 years worth of interest on the initial balance at the inception of the loan. Is that legal? I'll have to dig up my paperwork to see if that was mentioned anywhere, but I'm hoping someone can confirm that it's not possible before I do. I've had plenty of loans in my life and never had that happen before, so it never even occurred to me at the time that it was a possibility.

Thanks

 

[xylene]

Did you confirm (in writing) that your extra payments were being applied as you thought?

 

[OHRoadwarrior]

Without looking at a payment history on the loan, there is no way to answer your question logically. If you cannot access the loan history online, ask for a printout. No, they charge the interest when it is accrued.

 

[Zigner]

What is the name of your state (only U.S. law)? NJ

I purchased a car in July 2008; put 20% down and financed the rest for 5 years at 6.65%. I was talked into a warranty and GAP coverage, both of which came with a 30 day cancellation option, and I ended up using it for both, a total refund of $3250. I continued paying the original monthly payment anyway, which should have created an extra $64 in principal reduction every month for the past 3+ years. By my own calculation, I would have made my final payment in either January or February 2012. I was told recently that I owed nearly $1500 more than I thought I should right now, and won't be paid off until next summer (July/August 2012).

The only possible explanation I can come up with is that they accrued the entire 5 years worth of interest on the initial balance at the inception of the loan. Is that legal? I'll have to dig up my paperwork to see if that was mentioned anywhere, but I'm hoping someone can confirm that it's not possible before I do. I've had plenty of loans in my life and never had that happen before, so it never even occurred to me at the time that it was a possibility.

Thanks

Did you apply the $3,250.00 refund as a lump-sum payment towards the loan? Or did you simply put the money in your pocket?

 

[DaveT]

Did you confirm (in writing) that your extra payments were being applied as you thought?

I didn't, but they were the ones that told me I had to continue paying the agreed upon monthly amount even though they had received the lump payment, and that I would just be done paying earlier.

Without looking at a payment history on the loan, there is no way to answer your question logically. If you cannot access the loan history online, ask for a printout. No, they charge the interest when it is accrued.

I spent 20 minutes on the phone with them last week discussing my loan, and finally had them agree to send me an amortization schedule. I just received that today, but all they sent me was my original agreement before the lump sum was applied. I'm going to call them again today to request a payment history instead, hopefully that will be more helpful, if they'll supply it.

Did you apply the $3,250.00 refund as a lump-sum payment towards the loan? Or did you simply put the money in your pocket?

The money never came to me; it went from the dealership back to the bank that supplied the loan. I did confirm that it was paid at the time, and they confirmed that there was "a substantial early payment" (their words) on the phone the other day.

Looking back at my old post, it did take them 4 months to process that refund, which could account for a small part of the difference:
https://forum.freeadvice.com/consumer-contracts-guarantees-warranties-22/warranty-cancellation-refund-440273.html

 

[DaveT]

My main question though is: Is it illegal to accrue all interest at the inception of a loan?

I just need to know if that's even a possibility.