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How paying the principal affects your car loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. This allows you to conduct your own research and to compare information at no cost to help you make sound financial decisions. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The products that appear on this website are provided by companies that compensate us. This compensation could affect how and when products are featured on this site, including such things as the order in which they be listed within the categories of listing in the event that they are not permitted by law for our mortgage or home equity products, as well as other home lending products. This compensation, however, does not influence the content we publish or the reviews you see on this site. We do not contain the vast array of companies or financial deals that may be available to you.



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3 minutes read. Published September 27 2022
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Editor: Rhys Subitch Edited by Auto loans editor

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Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized student financial aid expert

Mark Kantrowitz is an expert on student financial aid, including the FAFSA as well as 529 plans, scholarships as well as tax benefits for education and student loans.









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Repaying the principal amount on your car loan is a great method to increase the equity in your car. In most cases, you must indicate your lender that the payment is to be made only to the principal, either via the internet or by phone. Each lender uses its own method but not all accept principal-only payments. What is a primary-only car payment? A principal-only car payment is a type of payment that goes exclusively towards the principal balance of your car loan and is separate from your normal monthly payment. It is the principal amount that you initially borrowed, without additional interest. The goal of this extra payment is to speed up the your repayment of the loan. Every payment that goes only to your principal will build equity in your car. When you accumulate equity in your vehicle you'll be closer to owning it for the first time. This also lowers the chance of having to repay more than your vehicle is worth. It is also called having to pay for the loan. How to pay off the principal of the car loan The principal-only option on your car is a great way to pay off your loan more quickly. Although it's not available for all lenders, you will likely need to directly notify the lender that the payment is intended for the principal balance only, and not an early payment of the next installment. Check with your lender to see whether it is able to accept this kind of payment, and then go about making one. If you lender does not offer the option to pay in principal only but you could still be able to pay down your loan faster. How do you pay off your car loan quicker If you aren't able to make payments that are solely for principal however, you might be able to still get rid of your auto loan . Just make sure that your lender does not charge you prior to making any additional payments. Schedule biweekly payments There's a chance that you won't have the money to pay a full amount every month, but one half-payment every other week can cut down on the amount of interest that is paid based on how it's calculated. It only works in the case of pre-calculated interest, which is calculated in the same way regardless of the date when the payment is made. You should make a bit more than the minimum each month: Check with your lender to see if it allows this type of payment, and also how to make it. Every little bit counts in paying down the loan quicker. Make extra lump-sum payments in the event of an extra bonus or tax refund or tax refund, you can use it towards your car loan in the event that it is better put somewhere else. What happens when you pay down the principal of an auto loan impacts your credit score Paying down a car loan might seem like a good idea initially. But paying off your loan early, especially in the short term could have a negative impact on your credit score . In the short run your score could decrease by a few points, but over the long term you could see it increase if you have a high debt-to-income ratio. Other factors, like your credit score and payment history, can also affect your score. To determine if you should pay off your car loan earlier is the right choice for you, consider the followingfactors: Your credit mix: Paying your auto loan early will show lenders that you can manage your debt in a responsible manner. But your credit mix -- the variety of credit accounts you hold like credit cards, a car loan, credit cards and many more -- could suffer if the car loan is the only installment loan. Your credit history: Paying off a car loan earlier reduces the amount of payments that you make regularly, but it doesn't have as much of an impact as revolving debt. Your ratio of debt-to income: Your debt-to earnings ratio is a different aspect that determines the amount of you owe in comparison to your earnings. Paying down the balance of your car loan could increase the DTI ratio and help to increase your credit score in the long run. How to reduce your monthly car payments If you're trying to , a principal-only payment will not help, as it won't lower the minimum amount you pay. However, there are a couple of ways to reduce your monthly car payment. Refinance your loan if your credit has improved or you find an interest rate that is better it could be a way to help you pay it off quicker. If you decide to refinance your car loan, you take out an entirely new loan with an alternative lender to pay your current loan off. It is therefore important to shop around and find the best deal possible to reduce the total price of the loan and your monthly payments. Modify your loan It is also possible to talk to your current lender about . Your lender might be willing to change the terms for your loan for the purpose of making your monthly payments affordable. One method to accomplish this is to extend the loan term. But doing so will mean paying more interest over the course of time. Sell or trade in your vehicle Another way to lower your payment is to get into a less expensive vehicle. Trade in your current car and/or selling your car privately could get you the funds to make a down payment. Then, you can locate the right car to fit your budget, and then shop to find the most suitable car loan available. The bottom line Paying down the principal of your car loan could be a smart way to build equity. If your lender allows the possibility of additional payments to your principal, you may make them at any time you'd like. Learn more


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Written by

This article was written by using automated technology. It was then thoroughly edited and fact-checked by an editor from our editorial team.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping their readers feel confident to manage their finances through providing precise, well-studied information that breaks down complicated topics into digestible chunks.






Auto loans editor


Review by Mark Kantrowtziz. Reviewed by Nationally known student financial aid expert

Mark Kantrowitz is an expert on student financial aid, the FAFSA and scholarships, 529 plans, education tax benefits and student loans.






Nationally anerkannt student financial aid expert




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