4 Comments

1. singledad says:
   June 7, 2010 at 12:09 am

   pay more on the principal
2. Spock (rhp) says:
   June 7, 2010 at 12:34 am

   the usual thing with installment loans, including auto loans, is that payments are taken only in the regular monthly amount. Paying more at most banks means paying double and the extra payment is taken off the far end of the loan, not the next month’s payment. [another payment is still due next month.]

   it is possible that your bank doesn’t do this and does credit all extra payments directly to the principal. a credit union is probably more likely to do this.

   rest assured that paying more does NOT make your next month’s payment smaller. It stays exactly the same until all the principal is paid — which will be earlier than scheduled fi you pay extra.

   ***
   there is no harm in calling your lender and asking how they treat extra large payment amounts.
3. Matt K says:
   June 7, 2010 at 1:21 am

   Paying extra on the principal means you will pay the loan off faster, and therefore, pay less interest during the life of the loan than if you only ever paid the minimum due each month.

   Yes, next month’s payment is still due in the same minimum amount, but at least you will be able to pay if off faster if you keep paying extra to principal.
4. stan c says:
   June 7, 2010 at 2:12 am

   If you have a simple interest loan, you have 2 choices here, if you want to reduce the interest, you have to inform them that you want the add’t amount applied towards the principle reduction, If you do not state where the add’l goes, then it will go towards your next month payment. Either way you do it, you are saving money. I would take the latter because it would put you ahead in the event you can not make a payment for the month.