Setting up payment of existing car loan

Hello my kind fellow budgeters.

So, I've been going around this forever and I feel like I've never gotten it right. I'm hoping someone can walk me through the right way. I have an existing car loan which currently sits at around 20K. Let's use 20K just for simplicity's sake. At the moment, it's my only debt, and I wanted to focus on paying it off as quickly as I could.

What I used to do was simply pay the minimum to the creditor and the money was gone, and that's fine, but I didn't have a way to track the current balance owing without going to the web site of the creditor and looking it up. So, I figured great, I'll set up an account (call it Das Auto) and instead fire the payment into that, alone with any extra I can spare to pay it off faster, and every few months make whatever minute adjustment is needed to account for interest (aside--why doesn't YNAB let you attach an interest rate to a debt that automatically calculates and adds the interest as you go per month?). Anyway. When I did this, YNAB created the account and it showed a negative balance of 20K. Great.

Now, when I budget, I have a line item for my car payment. It's set up as a monthly spending target, and I fund it monthly. So great, money's there, I can spend it.

Here's where I get confused. I use the Das Auto account to make the payment to the credit company and the money leaves the category, but then the account goes further into debt, which is the wrong way, as I've made a payment.

Only thing I can think is to set up the Das Auto account as being 20K *positive* and I pay it down to zero, which strikes me as being bass-ackward because I don't actually have that money (or do I--it's just... someone else's money [I.e. the creditor's])?

Anyway, I hope that's enough info to allow someone to help me out here. I KNOW I'm not the only one paying off a car, so there's got to be canonical way to do this; I'm just unable to find it. Any help is most appreciated.

Thanks in advance!

PotN

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  • OK, I think you were on the right track. I believe the thing you are missing is that the payment is a transfer between accounts. It should be positive in your loan account and negative in your payment account for the same amount but it needs to be a transfer rather than two separate transactions. The transfers between accounts are at the top of the payees list. Looks like "Transfer: Account".

    Now, you can put this loan account in your budget or outside of it in a Tracking account. Since you don't spend from it and only pay it off it should probably be a Tracking account outside of your budget accounts. This is called a Liability account in YNAB. You'll budget for it and make payments as a transfer out of checking and to the loan Tracking account.

    Does that make sense? I have done this in the past so let me know if you have any questions.

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  • Thank you very much for your reply. I think that makes sense, however, if I transfer out of my checking directly into Das Auto, then there's no category, and so I cannot track it as a car payment. I also cannot really 'budget' for it if it doesn't hit a line item, isn't that so?

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      • MXMOM
      • MXMOM
      • 3 mths ago
      • Reported - view

      Pickle of the North I recommend using undebt.it to track the loan and just budgeting for a category called car payment in YNAB. Undebt.it lets you put the interest rate and also see the payoff date of all your debts with the car loan in there.

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    • MXMOM Thanks for the recommendation. I will have a look. it would have been nice to keep it all in one app, but I guess that might be the best way for all that it takes another step. Sigh.

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  • Pickle of the North said:
    if I transfer out of my checking directly into Das Auto, then there's no category

     If das Auto is a tracking account, there will be a category. Payee is still Transfer: Das Auto

    Secondarily, to handle interest/correct balances in that tracking account, I would enter an interest transaction in das Auto such that the new balance after each payment is correct. There is no category needed because it's within a tracking account.

    You can save work by using either scheduled transactions (which you edit each month) or making a reconciliation adjustment and changing the payee to interest.

    This is how I've done all debt that wasn't currently revolving. 

    Like 2
    • Move Light Sound Life AHA! Creating a tracking account is what I was missing. Thank you for that insight. Up to now, I did not have that, and so did not have a category. That solves everything save the automated calculation of interest, but I can live with that, updating it as you suggest.

       

      Really appreciate the help, everyone!

       

      One last thing at the risk of threadjacking my own thread: So, I created my Das Auto account originally as non-tracking, and when I tried to close it, I needed to pay it off first. I basically just added 20K of fictional money from nowhere into the account so I could close it. I assume that has no real impact on the budget globally? After all, I zeroing the amount...?

      Like 2
    • Pickle of the North Just make sure you don't have negative numbers anywhere in the budget. If your accounts are accurate, YNAB does the math to ensure your budget has the same amount of money. 

      Like 1
    • Move Light Sound Life Yup. All the accounts have the expected figures, so all is well. Thank you again! 

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  • Pickle of the North said:
    (aside--why doesn't YNAB let you attach an interest rate to a debt that automatically calculates and adds the interest as you go per month?)

     Glad you were able to get this set up! Oh, and keep an eye out for some cool stuff coming up.

    Like 1
    • Rachel Well, that’s something to look forward to then. 🙂

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