If I pay more than the monthly amount due on a car loan, will that money go towards the principal?
I've got some extra money lying around and I'm trying to decide what to do with it. If I start paying more money on my car loan, will it go towards the principal only?
Answer provided by
Eric Schad
Answered on Mar 25, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
“Not necessarily. Some lenders set up their car loans so any extra money goes directly to the interest. Therefore, you should signify on your check or online payment that the extra money is for “principal only.”
To err on the side of caution and to create a paper trail, make two payments: one for your monthly car payment and one only for the principal. By doing so, you can sort the payments out for your own records, and you’ll also have documentation if you need to dispute any payments. Also, make sure that your lender doesn’t have prepayment penalties, which can render your idea of extra payments useless.
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