GM Financial allows unlimited extra payments to be made (per their website's FAQs), without fees/penalties (per my latest (July 2020) contract). But, at least how I'm understanding them, those FAQs include contradicting statements. For example, note the highlighted sections of these three screenshots:
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The third FAQ implies that making extra payments will result in paying less accrued interest as well as paying off the contract sooner. But if extra payments are always, automatically applied to future payments (vs being deducted from the principal balance), does that not just ensure that GM Financial squeezes the same amount of interest out of you, regardless of whether you make double (or more) payments every month vs the minimum payment each month for the entire term? Also with GMF, having no more payments due != the loan being paid off. For example, consider having the following (easy math) loans:
-48 months
-(for easy math purposes, interest rate is irrelevant)
-$40,000 borrowed
-$1000 per month minimum payment
Using the above numbers and any lender, if you were to make the minimum payment every month, at the end of 48 months you will have paid the original $40,000 principal + $8,000 interest, and the loan would be paid off.
Using those same numbers, a GMF loan, and making double payments every month, after 24 months you will have still paid $40,000 principal + $8,000 interest, and there would be no more payments due. However, the loan wouldn't be paid off for another 24 months. Now I'm not totally sure about that last part. It's my understanding that it is illegal for lenders to charge interest in advance. That's why I believe they use the "all extra payments are applied to future payments" loophole.
Using the same numbers for a third time, but this time with (as far as I'm aware) any lender other than GMF, if you were to make double payments every month, after appx 22 months you will have paid the original $40,000 principal + only appx $4,000 interest, and the loan would be paid off. Why, because only when extra payments are deducted from the principal, instead of being applied to future payments, will interest and term decrease. There's always an action/reaction, and in this case, appx 1.1 months gets truncated from the end of the loan because it's no longer needed.
Using that last example of making double payments, GMF would have to halve the interest rate offered by other lenders for you to realize the same savings. And even then, though there would be no more payments due, the loan wouldn't be paid off until the contracted date.
Am I not understanding GMF's FAQs correctly? Are there any financial gurus amongst you than can confirm my interpretation, or set me straight?
The third FAQ implies that making extra payments will result in paying less accrued interest as well as paying off the contract sooner. But if extra payments are always, automatically applied to future payments (vs being deducted from the principal balance), does that not just ensure that GM Financial squeezes the same amount of interest out of you, regardless of whether you make double (or more) payments every month vs the minimum payment each month for the entire term? Also with GMF, having no more payments due != the loan being paid off. For example, consider having the following (easy math) loans:
-48 months
-(for easy math purposes, interest rate is irrelevant)
-$40,000 borrowed
-$1000 per month minimum payment
Using the above numbers and any lender, if you were to make the minimum payment every month, at the end of 48 months you will have paid the original $40,000 principal + $8,000 interest, and the loan would be paid off.
Using those same numbers, a GMF loan, and making double payments every month, after 24 months you will have still paid $40,000 principal + $8,000 interest, and there would be no more payments due. However, the loan wouldn't be paid off for another 24 months. Now I'm not totally sure about that last part. It's my understanding that it is illegal for lenders to charge interest in advance. That's why I believe they use the "all extra payments are applied to future payments" loophole.
Using the same numbers for a third time, but this time with (as far as I'm aware) any lender other than GMF, if you were to make double payments every month, after appx 22 months you will have paid the original $40,000 principal + only appx $4,000 interest, and the loan would be paid off. Why, because only when extra payments are deducted from the principal, instead of being applied to future payments, will interest and term decrease. There's always an action/reaction, and in this case, appx 1.1 months gets truncated from the end of the loan because it's no longer needed.
Using that last example of making double payments, GMF would have to halve the interest rate offered by other lenders for you to realize the same savings. And even then, though there would be no more payments due, the loan wouldn't be paid off until the contracted date.
Am I not understanding GMF's FAQs correctly? Are there any financial gurus amongst you than can confirm my interpretation, or set me straight?
