Making principal only payments on car loans

 

making principal only payments on car loans

Dear Driving for Dollars,
I have an auto loan that I pay with two checks every month -- one for the payment and one with extra toward the principal . I write "principal" on the second check every time, but the lender doesn't apply the check to the principal every time until I call and ask. Each time, they say it must have been a mistake and apologize.

Dear Matt,
It sounds like you are lucky, as many lenders won't take a principal payment on an auto loan at all. In states where the option of principal-only payments is required by law or with lenders who do offer the option, paying additional money toward your car loan to lower the principal and pay off the loan sooner can be tricky.

Lenders seem to have different methods of doing this, and it's rarely easy since they want to make as much interest as possible from the loan. In many cases, the lender will only take principal-only car payments a certain way such as by check to a specific address that is different from where your main payment goes or only by phone.

Making principal only payments on car loans

31-5-2013  · How to make principal-only car ... Contact your lender's customer service department and ask about the process for making a principal-only payment to your ...

31-5-2013  · How to Make Principal-Only Car Loan ... Contact your lender's customer service department and ask about the process for making a principal-only payment …

28-7-2011  · What is a principal only payment ? On my car payment I have two options when making a payment 1 - Pay ...

Dear Driving for Dollars,
I have an auto loan that I pay with two checks every month -- one for the payment and one with extra toward the principal . I write "principal" on the second check every time, but the lender doesn't apply the check to the principal every time until I call and ask. Each time, they say it must have been a mistake and apologize.

Dear Matt,
It sounds like you are lucky, as many lenders won't take a principal payment on an auto loan at all. In states where the option of principal-only payments is required by law or with lenders who do offer the option, paying additional money toward your car loan to lower the principal and pay off the loan sooner can be tricky.

Lenders seem to have different methods of doing this, and it's rarely easy since they want to make as much interest as possible from the loan. In many cases, the lender will only take principal-only car payments a certain way such as by check to a specific address that is different from where your main payment goes or only by phone.

However, as long as you are making the contracted principle and interest payment, most contracts allow for prepayments without penalty. This amount may or may not be limited, check your contract for specifics in regard to that.

Some payment coupons have spaces for additional monies sent and how you want them applied, if not, I would call your servicer and ask them how you can make a principle only payment.Some lenders actually apply any amount over the payment directly towards the principle, but again, check your contract as some will only apply it towards your next fuli interest bearing payment.

No. When you make a payment on a regularly amortizing loan, all monies are first applied to accrued interest , and what remains is paid to the principal. Think of it this way, the interest that is due is what you are being charged for the money you borrowed from the bank. This interest accrues against the current principal balance, so the lower the balance, the less interest that will accrue. While this is a strong argument for paying additional funds to your principal balance, you must first pay the interest that is due to the bank because you borrowed their money.

I can think of very few disadvantages to making principal only payments on your mortgage if you can afford to do so. You might want to take a few extra steps to ensure they are posted properly to your account.

If you can, I suggest you go to your bank personally to make the principal only payment. That way you can make sure it is applied properly. If not possible, make sure you send in the payment certified, return receipt and check your statements carefully after each payment is made.

Check with your CPA or financial planner for more options available to you. You want to make sure your money is working for you in the best way possible.