Buckhannon, WV asked in Banking and Consumer Law for South Carolina

Q: according to SC laws pertaining to auto loans, are you allowed to make principal payments without being charged interest

I’m financed through ally bank and they are giving me a hard time with making an extra payment just toward my principal. They are tacking in interest for the month again. By law am I able to make just a principal payment without interest? And why is my payout higher than what is left on the car? If I do a payout I’m being charged almost $1,500 more than what’s owed.

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1 Lawyer Answer
D. Nathan Davis
D. Nathan Davis
  • Consumer Law Lawyer
  • Licensed in South Carolina

A: You need to review the note and related documents. Under a standard amortization, you can make payments to principal.

If your loan was financed using the rule of 78's, then, you cannot pay principal as you are asking.

If the loan is a simple interest loan, you are charged interest from the time you make one payment until you make the next payment. It is possible that you could not even pay any principal if you pay your loan a little late.

The question regarding the payoff is going to be controlled by two different possibilities.

1. The monthly statement does not take into account the interest that has been charged to the loan and the amount owed is higher than the amount shown on the account balance. This is very common.

2. You had a simple interest loan that kicks in additional interest every time you pay more than 30 days from one payment due date to the next. This gets you two ways. One you are paying interest and not touching as much of the balance as you would pay if you paid timely. You also have a higher balance so the interest rate is generating more interest and less principal reduction which will leave you with a higher balance when you make your last payment.

You need to speak with an accountant or attorney who understands how to read the note and advise you regarding your next step. Without actual documents, all that can be done is to guess as to what is happening.

You also need a statement from your lender showing the payment history and how payments were applied to your account.

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