If you have a simple-interest loan, you can pay it off more quickly by making additional payments toward the principal.

Here’s how to pay off your car loan faster by making extra payments toward your principal balance.

Contents

- 1 What is principal on a loan?
- 2 How do you calculate principal on a car loan?
- 3 Should I pay off principal or interest first?
- 4 How can I reduce the principal on my car loan?
- 5 Does paying principal lower monthly car payment?
- 6 How do you pay the principal on a loan?
- 7 What does it mean to pay the principal on a loan?
- 8 How does paying down principal work?

## What is principal on a loan?

The principal of a loan is the amount borrowed. Interest is calculated on the principal. In a loan amortization schedule, the principal and interest are separated, so you can see which part of your monthly payment goes to paying off the principal, and which part is used to pay interest.

## How do you calculate principal on a car loan?

**Calculating interest on a car, personal or home loan**

- Divide your interest rate by the number of payments you’ll make in the year (interest rates are expressed annually).
- Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount.

## Should I pay off principal or interest first?

If your bank does not charge any extra fees, you may choose to do it each time you are paid. This is because it will reduce the principal on one loan and reduce the amount you are paying on interest. Paying off your highest interest loans first can help you save money and speed up the process.

## How can I reduce the principal on my car loan?

**How to Pay Off Your Car Loan Early**

- Pay half your monthly payment every two weeks. This may seem like a wash, but if your lender will let you do it, you should.
- Round up.
- 3. Make one large extra payment per year.
- 4. Make at least one large payment over the term of the loan.
- Never skip payments.
- Refinance your loan.

## Does paying principal lower monthly car payment?

Save on interest

When you make your monthly payment on an auto loan, you’re paying both the principal, which is the amount you borrowed, and the interest and any fees, which is the cost of borrowing. Depending on the terms of your loan contract, you might pay less interest if you pay off your principal early.

## How do you pay the principal on a loan?

In a Nutshell

As a general rule, making extra payments just toward the principal balance can help you pay off a loan faster and reduce the overall cost of the loan. But you’ll want to make sure your lender accepts principal-only payments and won’t penalize you for making them or paying off your loan early.

## What does it mean to pay the principal on a loan?

Principal is the money that you originally agreed to pay back. Interest is the cost of borrowing the principal. Generally, any payment made on an auto loan will be applied first to any fees that are due (for example, late fees). Then the rest of your payment will be applied to the principal balance of your loan.

## How does paying down principal work?

Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.

Photo in the article by “Penmon Family History” `http://www.penmon.org/page14.htm`