How do you pay the principal on a car loan?

Is there a way for me to pay off the principal on my car loan? I’m not really sure how the payments are divided, but I know I would save if I could pay off the principal.

Answer
You’re correct! Paying off more of your principal can save you money on interest. To pay the principal on your car loan, you’ll need to either make larger or extra payments each month.
When you first start paying off a loan with simple interest, a large portion of your payments will go towards the total interest and fees, while the remainder goes towards the principal. As you continue to make payments, more will go towards the principal. If you pay more than your usual monthly payment, the excess will go to the principal.
To reduce your principal, try:
  • Rounding up your payments.
  • Making one large payment per year.
  • Paying half of your monthly bill every two weeks rather than the whole bill once per month.
That said, some lenders charge prepayment penalties or don’t automatically apply excess payments to your principal. Be sure to contact your lender or review your loan agreement before making additional payments.
If your financial situation has changed since you took out your last auto loan, it may be time to refinance. Download Jerry to see if refinancing your car loan can save you hundreds of dollars per month.
Liz Jenson
Answered on Dec 03, 2021
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