So I have been toying with the idea of paying extra payments for my motorcycle for a while. Part of the process involved seeing how my current payments were applied. I got one of my statements in the mail and did some quick math... I was shocked at the results. Each month, I pay my normal monthly payment of $114.46. OK, so $64.66 of that goes towards the principal, and 49.80 goes towards interest. Now, correct me if I am wrong, but that means 56% of my money is going to cut down the amount I owe on the bike, and a whopping 44% magically disappears into the "banking void". This seems a little askew, but I am no banking or loan specialist so what do I know? I guess with the way amortization works out, it is dead on, I just never spent much time thinking about it.

I decided to try and send a little extra and maybe add a note saying "apply to principal only", or something of that nature. During this experiment, I discovered a limitation of my current online only banking situation with my "Electric Orange" ING Direct banking account. One way to send payments with ING is to virtually "write a check". When you do this it brings up a check on the screen, and you fill it out like you would any check.

Here is where I ran into problem #1. The memo line, where I would screw over GE Money bank (who holds my Yamaha Installment Financing loan) by paying less interest than they want me to, by writing "principal only", would only accept some ridiculously low amount of characters, which would not even be enough for my entire 16 digit account number. If I had a paper check and a pen, I could pretty much put as much crap in the memo line as I saw fit.

Problem #2 come when I tried to fill out the check. When I put in "GE Money Bank" in the payee section, it automatically populated the entire thing with the information from my normal electronic payments payees address book. This is problematic because ING will automatically send the payment electronically rather than sending a paper check, if the "to" institution is setup to accept electronic payments. This means it automatically goes out of "virtual check writing" mode and back into normal electronic payment mode, which does not feature a memo line anywhere.

So this took me back to square one. Well, now what? I decided to send them an extra $20 using the normal electronic payment method anyway, just to see what would happen. Again, I was shocked at the results. I figured that they would simply apply the $20 towards my next payment, subtracting from the $114.46 I owed them for the next month. Well, it didn't work that way at all. I am sure it doesn't matter at all, but I should mention here that I do not pay them once a month as I get my statements. Instead, I do like I do with everything else, and pay them every other time I get a paycheck from work. This results in my always being a ahead by a payment or two. Anyway, so I paid them the normal amount of $114.46, and the next day sent them the additional $20 payment. How did the extra payment get applied? $18.36 went to principal, and 8% went to interest!!

What the shit? Is that how stuff works? Again, I am no grand financial wizard, but this seems very odd. I guess my knowledge of amortization functionality is limited, but it seems like A. it would be in the bank's best interest to not allow extra payments, or at least apply the extra payments divided differently, and that B. everyone should always make extra payments on everything if possible, even if it is only a few bucks here and there.

If I pay an extra $20 a month, I will chop an entire year off my loan term, and if I pay an extra $20 each time I get paid, rather than each month, I will knock off another 6-8 months. This seems to save me shitloads of cash, and screw the bank over to some extent at the same time... two things that make me smile.

Kill whitey!