Principal vs. Prepaying, Our Debt Snowball and How Wachovia Stole $8.03

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in debt snowball

As you may be aware my wife and I are working on our debt snowball and we all we have left is our VW and our mortgage, woot!   Above is our current progress not including the mortgage.  Incidentally if you’d like to be able to graph your own debt snowball or anything else for web use I have a write-up on Graphing your Debt Snowball with the Google Chart API.  Since we’ve taken care of our other debt obligations, those payments added up are making a sizable dent in the car payments, or so I thought. Our car loan is through Wachovia Dealer Services and they have taken it upon themselves to go ahead and apply those extra payments not to the principal owed on our car but rather towards the future payments due on the loan itself. I’m currently paid up past December with only a slight notch down in the principal. To say this angers me is the understatement of the year. Upon talking to one of their representatives (who honestly was very courteous) I learned that any extra payment must be labelled as principal only otherwise it will just be applied as a prepayment. Which explains why there online site would only allow me to make additional payments up to a certain amount. There is no option to pay principal only from the web, you have to mail payments in. So if I’m doing my math correctly that was 2 count them 2 payments of $573 that did not go towards my principal. So those extra payments should have taken my balance down $1146 but instead is just queued on my next payments. That means on the first month alone they’ll keep an extra $6.02 of interest on my 6.25% APR loan and roughly $2.01 from my next payment. That’s $8.03 they stole from me in interest. Of course I won’t take that I’ve already taken my normal payments and sent in directly to principal so they’ll only make a few extra cents on me.

This further cements why I need to be rid of these large interest sucking corporations that are mired in their own bureaucracy. Now did I have this same problem with my truck which I paid off 2 months ago? No. Why you ask? Because that loan was carried by my local credit union. They naturally assumed that if I paid extra on my truck that I would want to apply that to the principal. How about that. Also when I paid off my truck in full they sent me a congratulatory letter! Can you believe that, a banking institution that actually is happy for you to be free from a debt to them. Big props to the School Employees Credit Union of Washington, they are beyond awesome. If you are a resident of the great state of Washington and a teacher or a family member of a teacher or of a current member you can join.  Okay rant is over back to our normal scheduled programming.

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{ 8 comments… read them below or add one }

Kosmo @ The Casual Observer 2009/10/08 at 5:45 am

When we had our mortgage with CountryWide, we had extreme difficulty getting them to grasp the concept of an extra principal payment. It eventually got straightened out, but it too way to much effort and involved way too many people.

We ran quickly away from CountryWide when we refi’d (particulary since they were taken over by Bank of America, where we had an unpleasant experience). We’re with Chase now, and everything actually works like it should and gets applied properly.

There’s really no excuse for not having a “principal only” option for an online payment. In the grand scheme of things, it doesn’t take that much more development time. I’m an IT guy, so I realize that this is a 5 minute coding change, but it’s relatively small considering how important the payment receiving system is to the organization.
.-= Kosmo @ The Casual Observer´s last blog ..Eight Burning Questions About the Playoff Teams =-.

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Jack Foley 2009/10/08 at 9:00 am

Pull out the original loan agreement. Look up what the loan agreement says about payments in excess of your regularly scheduled payment. Most agreements are written putting these excess payments on principal of note.

The organization is obligated to follow their contractual agreement with you regardless of any policies, procedures and systems they may have in place that causes them not to follow the terms of the contract.

Check it out. If they aren’t following the terms of the agreement, send them a copy of the agreement and get them to do it right.

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paul 2009/10/08 at 9:31 am

That’s great advice Jack I’ll do just that.

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JoeTaxpayer 2009/10/08 at 12:47 pm

Paul,
Bad system, agreed. For mortgages, this is even more important as the dollars can add up fast. If one pays their mortgage by check, and is taking an extended vacation, they may want to make the payments ahead. If they are clustering their deductions to get higher Sch A itemized deduction in a given year, paying early can help. But of course, if they are trying to make principal payments and the bank isn’t accounting properly, it make take some time before the customer realizes something is wrong.
You’d think this concept would be easy for the banks to grasp, but i agree, they have no motivation to do so. When they make a mistake, they should pay you a penalty, just like we pay them for our mistakes.
Joe

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Credit Card Chaser 2009/10/09 at 10:49 pm

Congrats on your progress! My mortgage is through Sun Trust and they have a checkmark option on their online e-pay for any additional amount that I want to through directly towards the principal so I am very please with them.
.-= Credit Card Chaser´s last blog ..Wells Fargo Expected to Raise Credit Card Interest Rates 3% =-.

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Financial Samurai 2009/10/10 at 5:59 pm

Gosh,, stuff like this ticks me off. What’s worse, Wachovia is Wells Fargo now, and Wells Fargo is shady, especially with their mortgage rates, and what Cheronda Guyton do with that foreclosed Malibu house!
.-= Financial Samurai´s last blog ..We’re Ignorant Idiots! Please Tell Us Why A Flat Tax Is Not Fair. =-.

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paul 2009/10/10 at 8:57 pm

Yeah and to add insult to injury my mortgages (yes plural) are with Wells Fargo. Awesome. Thanks for dropping by!

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Software Wizard 2009/10/29 at 6:32 pm

The way it’s supposed to work is that the interest is calculated daily (probably) or monthly on the remaining amount. Then, if you make a payment ahead, the remaining amount will be lowered so the interest owed would be lowered. Once the loan is paid off, you are due a rebate check for the early payments. This happened to me with a car loan I paid off about 7 years ago. I haven’t had a loan lately, so maybe banks are trickier now than I remember.

If this is the case, it’s to your advantage that they count the money towards the next payment. Otherwise, you could make a payment too early and be hit with a “missed payment” fee. I just read a story on the web where a guy paid his credit card one day too early while carrying a balance. They counted it towards the principle, but not to the upcoming payment cycle. This caused him to “miss” a payment and be hit up with outrageous fees.

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