Pay your auto loan faster with extra principal-only payments.
Paying extra on your auto loan can save you money as long as the lender applies the payment to the principal of the loan. To make sure this occurs, you should always send a note with the payment telling the lender to put the payment toward the principal and not next month's payment. If you pay down the principal, the interest you pay decreases each month, so more of your regular payment goes toward the principal, as does the extra payment. This saves you money and accelerates the payoff of the loan.
Pay the Principal
Car loan payments consist of two parts. The principal is the actual amount of the loan and the interest is the cost you pay for the loan broken down into monthly payments. A portion of each payment goes toward the principal and another toward the interest. If you make your regular payment plus a principal only- payment, the interest that accrues during the following …show more content…
For example, you can save almost $900 in interest by paying an additional principal-only payment of $100 a month on a 60-month loan for $20,000 with a 7% interest rate. You'll also payoff your car loan one year and one month faster with the extra $100 payment.
Let the Lender Know
The key to using this payment strategy is communicating with your lender when you make your payments. To assure the lender applies the principal-only payment properly, write two different checks or make two electronic payments each month. Notate that the second payment is a principal-only payment and direct the lender to put it towards the principal. It is also a good idea to verify the payment went toward the principal by calling the lender. Unfortunately, some lenders will continue to misapply the principal-only payments as it is in their best interest financially to continue receiving more interest.
Learn the
Paying extra on your auto loan can save you money as long as the lender applies the payment to the principal of the loan. To make sure this occurs, you should always send a note with the payment telling the lender to put the payment toward the principal and not next month's payment. If you pay down the principal, the interest you pay decreases each month, so more of your regular payment goes toward the principal, as does the extra payment. This saves you money and accelerates the payoff of the loan.
Pay the Principal
Car loan payments consist of two parts. The principal is the actual amount of the loan and the interest is the cost you pay for the loan broken down into monthly payments. A portion of each payment goes toward the principal and another toward the interest. If you make your regular payment plus a principal only- payment, the interest that accrues during the following …show more content…
For example, you can save almost $900 in interest by paying an additional principal-only payment of $100 a month on a 60-month loan for $20,000 with a 7% interest rate. You'll also payoff your car loan one year and one month faster with the extra $100 payment.
Let the Lender Know
The key to using this payment strategy is communicating with your lender when you make your payments. To assure the lender applies the principal-only payment properly, write two different checks or make two electronic payments each month. Notate that the second payment is a principal-only payment and direct the lender to put it towards the principal. It is also a good idea to verify the payment went toward the principal by calling the lender. Unfortunately, some lenders will continue to misapply the principal-only payments as it is in their best interest financially to continue receiving more interest.
Learn the