Can a bank continue to allocate payments to interest even after they have taken what the contract states?

Question

I purchased a car, borrowing money from a bank for the auto loan. Long story short, I asked the bank for a detailed history of my payments, and they sent me a document that shows every payment I've made, how much was allocated to interest, and how much was allocated towards principal.

When I do the math, the sum of money allocated to interest and not principal, is a little over $9,000. The contract states that the loan will cost me $6773.50 in interest. Yet, I can see they reached that amount over a year ago, and have continued to allocate 40% or so to interest on every payment since.

I still owe $1700, my question is why 100% of my payments are not going to principal since they have already taken the contracted amount of interest?

From the contract itself:

Answer 1

The amount of interest is not "contracted". It's how much interest you'll pay if you make the exact monthly payment on time. It's calculated monthly assuming that your payments reduce the amount of principal owed, and subsequently how much of your payment goes to interest. Only the amount of principal is contracted - meaning once you've paid off the remaining principal you don't owe them any more.

The amount of interest you pay can increase if you miss any payments, since the interest continues to accrue. The next payment you make pays more interest and less principal, extending the loan and increasing the interest. Any late fees could also extend the loan (depending on the terms) if they are added to the principal balance.

If you went a long time without making payments, then I could see where interest would continue to accrue, and you'll be paying much more interest in future payments that what you were originally scheduled to.

For a more accurate explanation for your loan, post the terms of the loan (how many months? fixed payment and rate? balloon payment at the end? ) and if you've missed payments, when, and how many.