When it comes to making monthly payments on your auto financing, it’s important to know that you may have options beyond paying the fixed amount. Paying extra toward your account can, in the long run, reduce the amount you pay in finance charges over the life of your financing. As Fortune.com1 points out, the dollars you save in finance charges may not be huge, but paying down your account ahead of schedule could help free up money in your budget.
Our experts at Ally Auto have compiled a list of common questions to help you better understand how paying extra toward your Ally Auto account works.
Q: Will you apply my payment only to reduce my outstanding balance of the amount financed?
A: No. We will apply your payment first to any past due amount, then your current payment due, and next toward any fees, late charges, etc. Paying more than your scheduled payment amount (and/or paying sooner than the scheduled due date) will result in more money being applied to reduce the outstanding balance and potentially paying off your account sooner (assuming you do not pay late). It’s important to note that Ally’s standard practice is to apply your extra payments received to future due dates.
Q: How do consumers make payments to only reduce the outstanding balance of the amount financed?
A: We will not apply a payment only to reduce the outstanding balance. Each time we receive a payment, we calculate and collect a finance charge for the period from the date the last payment posted to your account up to the day we receive the next payment. Any extra amount you pay over the amount of your regularly scheduled payment is automatically applied to future payments, assuming the account is current and there are no past due payments, late charges or other unpaid charges owed on your account. Each payment, regardless of the amount, is applied this way automatically, so you can make your payments as usual, including any extra amount you like. Many of our customers find it convenient to enroll in AutoPay on our website, where you can indicate how much you intend to pay each month, and we will apply the payments as we have described.
Q: Will making additional payments on the amount financed change my monthly payment at all?
A: Although paying extra amounts result in your billing statements and account status indicating your next payment is for less than the scheduled amount, or that your next payment may not be due for several months into the future (depending on how much extra money you paid), you may pay the scheduled payment amount, more than the scheduled payment amount or the reduced amount shown in the billing statement or account status. Think of the next amount due shown on the billing statement or account status as a “minimum” — to keep your account current. In other words, we need to receive the amount shown on the billing statement by the due date so that your account remains current. This does not limit you from paying extra whenever you like.
Q: My contract states I can prepay without penalty. Isn’t it a “penalty” when you charge me finance charges?
A: No. You agreed to pay a finance charge when you signed the contract. As your contract shows, the finance charge is the cost of credit to you. By paying an extra amount when you make your payments (and if you are never late), you will pay less than the total finance charge disclosed on your contract and you will pay your account off sooner. There is no penalty charged for paying off your account sooner.
Note: These Q&As apply to standard Ally retail installment contracts, not Ally Buyer’s Choice or Ally Balloon Advantage. These answers are intended to assist customers in understanding the basic method of a daily finance charge contract and are not intended to describe the process in detail.