Financing guide
How extra car payments work
Learn how paying more than your normal car payment can affect your balance, payoff time and interest.
What is an extra payment?
An extra payment is any amount you pay in addition to your normal required car loan payment.
If that extra money is applied directly to the loan principal, it can reduce the amount you owe faster.
Why does paying extra help?
Interest is generally charged based on the remaining loan balance.
When you reduce the balance faster, future interest charges may also become smaller.
Example
Suppose you still owe $16,000 on a car loan and your normal monthly payment is $400.
If you begin paying $500 instead, the additional $100 can help reduce the principal faster.
Over time, this may shorten the loan and reduce the total amount of interest you pay.
One-time payments can help too
You do not necessarily need to increase every monthly payment.
A one-time lump-sum payment can also reduce the balance, which may lower future interest charges.
Check how your lender applies extra payments
Before paying extra, check your loan agreement or ask your lender how additional payments are applied.
Ideally, the additional amount should reduce your principal rather than simply be treated as an early future payment.
Try the payoff calculator
You can compare your normal payment plan with extra monthly or one-time payments using the DriveMath Loan Payoff Calculator.