What should happen when you pay over your monthly car payment?

Question

When I say what should happen, I mean that shouldn't it come directly off the principle?

Answer 1

How it works on any loan is that it pays the interest FIRST....THEN the principle. If you want to kill off the principle early, add a few dollars more to each payment

Answer 2

I like Marko's answer. Bottom-line, it's in the contract. Call your lender. It's better for your credit to overpay monthly and will shorten the loan one way or the other. Just make sure you make all your payments on time and the rate never changes. Loans amortize which has you paying mostly interest up front in each payment with the large principal payment at the back of the term. You need an amortizing calculator to know which is principal and which is interest. It's not like a revol ving credit card. I suggest www.bankrate.com. There are manywebsites where you can see the amortization schedules.

Answer 3

If your credit agreement stipulates a straight amortization and that all extra payments will be applied toward the reduction of outstanding principal, then yes, that's exactly what would happen.

But auto loans can be purposely structured in other ways, so you'll have to review the terms of your loan agreement. It may state, for example, that any excess payments will be applied toward future interest owed, so that interest on the balance outstanding will continue to accrue. And many auto loans are not set up on a straight amortization schedule. They can make it purposely difficult to understand if you're not well versed in reading contracts.

In most cases, though, you should be okay if you submit to the lender a separate check, stipulating both on the check itself and on a separate note that this amount is to be applied toward principal reduction only.

To make sure the payment is properly applied, call the lender and verify. If at all possible, get a clarification in writing, or at least ask where on your loan agreement this issue is addressed - only then can you be sure that you've got it right. Good luck.

Answer 4

Not necessarily, some companies will use that extra to push back your next payment. If you are paying extra, best to send a second check (can be in the same envelope), and clearly mark it as an "Extra Principle" payment with your account number in the memo line.

Answer 5

It can go both ways. Extra money can go as extra to principle or go towards the next month's payment.
Mine works as the next month's payment, but you can keep paying ahead more and more. My last three months, they lowered my bill, 10-ish bucks off each time, about $40 less per month, but when you look at it, 40 buck x 40 months=1600 that I save of interest!

Answer 6

It should go to your principal - you may have to request the overage go directly to your principal. You would then end up paying it off sooner than the original contact states. But make sure you have that type of loan - it will state that in the original contract.

Answer 7

Yes...and no.

If you don't tell them to apply it directly to principle, all it will do is delay your next payment.

Answer 8

Any overpayment should be applied to the principle.

Answer 9

No. Read your loan instrument again.

Answer 10

they send to extra money to me, thanks