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My Auto loan is calculated by "simple interest". Would paying weekly save me money? If so, wouldn't paying daily save me even more money?

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If there's no prepayment penalty, and if the extra is applied to principal rather than just toward later payments, then paying extra saves you money. Paying more often, by itself, doesn't. Paying early within a single month (ie, paying off the loan at the same average rate) doesn't save enough you be worth considering

  • I asked my car loan company and they said that paying daily would save me daily accrued interest which is $3.50 per day. That totals to over $1,200 dollars per year. Are they wrong? – surprisedbadger Feb 9 '16 at 17:03
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    Probably not, but what are the terms of your loan? How much is the loan amount and what is the interest rate? – Chris Feb 9 '16 at 17:23
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    @Onecraftyninja, paying daily doesn't get rid of any accrued interest. You may be paying $3.50 per day in interest, but that's the interest on the entire principal of the loan. All you are doing by paying daily would be to reduce the amount of tomorrow's interest by the amount you paid today. But tomorrow's interest wouldn't go to zero because of it. – Bill Nace Feb 9 '16 at 17:55
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    If you pre-paid at the start of the month (or other period you are paying), it would save you even more than paying daily. – Victor Feb 9 '16 at 20:18
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Say the rate is 6%, and the payment is $500/mo. If the bank credits on the day received, the .5% per month is $2.50 for the whole month. In other words, pulling in the payment by the full 30 days will save you about $2.50. The whole loan may be costing $3.50/day, but you can only impact the amount one payment at a time.

To be clear, you need to find out exactly how they credit you. Some loans do not accept partial payments separate from the normal payment. If a $500 payment is due, that's the time to prepay principal, but they might not accept, say, $200 each week.

As a side note, mortgages typically don't credit the way you'd hope. I have a standard 30 year mortgage and whether I send the payment a full 15 days early or 14 days late, the next month shows a balance that I can pull from an amortization table assuming all payments are on the 1st of the month. If I were you, I'd make a full payment 2 weeks early, then check your balance and see what the impact was, just to be sure.

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