Paying extra toward the principal won't lower your monthly car payment. It may save you money in the long run by shortening the loan.
The amount you will pay each month is calculated at the beginning of your car loan by the lender using a simple formula: dividing the total loan amount, including interest, by the number of months in the loan term.
The result is your monthly car payment, which is the same amount each month.
Just answer a few questions to get personalized results from our lending partners.
Paying extra on your auto loan principal won’t decrease your monthly payment, but there are other benefits. Paying on the principal reduces the loan balance faster, helps you pay off the loan sooner and saves you money.
Most auto loans use simple interest, a method that calculates interest monthly based on the principal amount you still owe. Each month, a portion of your car payment goes to the principal and a portion to interest. At the beginning of the loan, a larger part of your payment goes to interest. So paying extra on the principal early in your loan will have the greatest impact on the overall amount of interest you pay.
How to pay extra on car loan principal
Paying extra toward the principal isn’t always as easy as just sending extra money with your car payment.
Talk with your lender to see if they have a specific way of designating when an extra payment should go to the principal, such as marking a check box, including a note with the payment or mailing the extra amount to a different address. Also, check your loan statement to make sure your payment was divided as you expected between the principal and interest.
Since directing extra money to the principal will pay your loan off early, also ask the lender if you'll incur any prepayment charges.
Explore options for car shopping, auto loans, and lease buyout.
AD
TrueCar - Purchase loan
Used and New Car ShoppingCompare car models and get up front pricing with TrueCar's digital marketplace. Auto financing is available through TrueCar+ and options to sell or trade-in with True Cash Offer.
Flexline of CreditWith Carputty's fast & flexible vehicle financing, unlock up to $250k in financing and a single rate for new or used vehicles, lease buyouts, and refinancings.
Auto Loans for Bad CreditWith a network of lenders that offer flexible qualification requirements, and allow co-signers and co-borrowers, Auto Credit Express is best for finding a dealer with subprime lending.
Lease BuyoutGravity Lending connects applicants with lenders in its network of more than 70 partners. It also boasts no origination fee and a fully online application.
You can choose a different loan term and possibly qualify for a lower rate, providing an opportunity to adjust your monthly car payment. You might save $25 a month, but over a 48-month term that’s $1,200 back in your pocket.
If you want to dramatically lower monthly payments, though, you'll most likely need to extend the loan term. Before rushing to do that, know that you may actually pay more overall, due to the extra months of interest. Also, going to a longer term can leave you upside-down on your car loan — a situation where you owe more on your car than it’s worth.
Paying extra on your auto loan principal won't decrease your monthly payment, but there are other benefits. Paying on the principal reduces the loan balance faster, helps you pay off the loan sooner and saves you money.
Do Large Principal-Only Payments Reduce Monthly Payments? No matter how many principal-only payments you make on a fixed-rate mortgage, your monthly payment stays the same unless you recast your mortgage. You'll end up making fewer total payments and paying off your mortgage faster.
Making principal-only payments on your car loan can help you build equity, save on loan interest and pay off the loan faster. But make sure you allocate extra payments in a way that saves you the most money. If your lender won't apply extra payments to your principal, you won't benefit as much.
If you make a down payment, you'll still finance or borrow the remainder of the cost. But the payment reduces your loan-to-value ratio—the amount of your loan divided by the cash value of the vehicle. A lower loan-to-value ratio often leads to better loan deals.
A principal payment only lowers the principal balance of a loan. Making principal-only payments is a financial strategy you can use to pay down your loan faster. When you make a principal-only payment, your money only goes toward the principal balance. It does not pay down any accumulated interest.
Principal-only payments are a way to potentially shorten the length of a loan and save on interest. If your lender allows it, you can make additional payments directly toward the amount of money you borrowed — the principal — which can help you pay off your loan faster.
Your car payment won't go down if you pay extra, but you'll pay the loan off faster. Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
By paying half of your monthly payment every two weeks, each year your auto loan company will receive the equivalent of 13 monthly payments instead of 12. This simple technique can shave time off your auto loan and could save you hundreds or even thousands of dollars in interest.
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
Paying half of your monthly car payment twice a month instead of a full payment each month can help you pay off your car loan early. That's because when you make payments on a biweekly basis, you make 26 payments that add up to 13 monthly payments instead of 12.
Not only does this show lenders how dedicated and serious you are to pay back the loan, investing some of your own cash into this purchase motivates success. You'll really see changes for the financial better in your car loan when you make a really large down payment, about 50%.
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
What Are the Disadvantages of a Large Down Payment? Providing more money down doesn't guarantee a lower interest rate, and it can cut into your savings. Depending on the vehicle you choose to buy, 50% can be a lot of money to put down on an auto loan.
Your car payment won't go down if you pay extra, but you'll pay the loan off faster. Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
Compare multiple loan offers. Financing your purchase through the dealership is easy, convenient, and quicker than shopping around for other offers, but it may not be your best bet. ...
Address: Apt. 536 6162 Reichel Greens, Port Zackaryside, CT 22682-9804
Phone: +9958384818317
Job: IT Representative
Hobby: Scrapbooking, Hiking, Hunting, Kite flying, Blacksmithing, Video gaming, Foraging
Introduction: My name is Jamar Nader, I am a fine, shiny, colorful, bright, nice, perfect, curious person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
