How to Make Extra Payments Toward a Car Loan

1.

Call the customer service department of the bank that issued you the car loan and get the address to send your payments. Your monthly statement will have this address as well. Photocopy your statement or write down the payment address and your account number. When you get ready to send extra payments, you will have the information you need at your fingertips. Extra payments can be sent together or days apart.

2.

Determine the method for making your payment. Some companies allow you to make payments over the phone. Payments can also be mailed or completed online. If your bank offers online bill paying, this can be utilized as well.

3.

Decide how much money you are going to pay. You can send any amount above your standard monthly payment. If your payments are $500, and you send in $700, the additional money will be applied towards your principal balance. Finance charges are always paid first, then the rest is applied towards principal. You can also send in $1,000, which is two standard payments.

4.

Write a check and make sure it contains all necessary information and is signed. Write your loan account number on the voucher portion of your check. This will ensure that your payments are posted without any delay. If you make two standard payments your loan due date will advance two months. If your current due date is March 1 before the payments are made, your due date will be May 1 after the payments are applied to your account. Interest is computed based on your outstanding balance. Your interest charge per month will continue to decrease as your balance decreases. Send your payment to the address provided by the customer service department.

5.

Wait five or six days and call the bank for confirmation that your payment has been posted to your account. Sometimes payments are posted to the wrong account in error. Even if your check has cleared, the bank may not have applied it to your account. If you let the bank know an error has occurred, it should be able to fix it and apply the payment to your account.

6.

Get an auto loan calculator. An auto loan calculator is a useful tool used by auto dealers and financing companies. You can calculate your new payoff date after extra payments have been made. This tool also helps you calculate how much you save in finance charges when you make an extra payment.

7.

Make a principal-only payment. Send in a payment and include a note requesting that the payment be applied towards the principal balance only. If you send in two payments and you request that one of the payments go towards your principal balance only, your due date will not be advanced outwards. If you have a payment due Dec. 1, you mail a payment on Dec. 2 and the lender receives it on Dec. 5, your next payment will be due Jan. 1. If you mail another payment on Dec. 10 and you request that it be applied towards the principal balance only, your next payment will still be due Jan. 1. Principal-only payments will reduce your balance but they don't push or advance your contractual due date forward.

Making extra payments towards your car loan can save you a significant amount of money since you reduce the amount of finance charges you pay. Extra payments help to shorten your loan term. When you get ready to make extra payments, you will need to follow the correct procedure to ensure your payment has been received and processed. When you have paid your car loan in full, your automobile will have a free and clear title.