How to make principal-only car payments

By Tara Baukus Mello •

Tara Baukus MelloDear Driving for Dollars,
I have an auto loan that I pay with two checks every month — one for the payment and one with extra toward the principal. I write “principal” on the second check every time, but the lender doesn’t apply the check to the principal every time until I call and ask. Each time, they say it must have been a mistake and apologize.

What’s the easiest way to accomplish this, so I don’t need to call the lender every month?
— Matt


Dear Matt,

It sounds like you are lucky, as many lenders won’t take principal-only car payments on auto loans at all. In states where the option of principal-only payments is required by law or with lenders who do offer the option, paying additional money toward your car loan to lower the principal and pay off the loan sooner can be tricky.

Lenders seem to have different methods of doing this, and it’s rarely easy since they want to make as much interest as possible from the loan. In many cases, the lender will only take principal-only car payments a certain way such as by check to a specific address that is different from where your main payment goes or only by phone.

Contact your lender’s customer service department and ask about the process for making a principal-only payment to your auto loan. Make the request by email if possible, so you can get the reply in writing. Then, use that process each time you make your principal-only payment. If you still have trouble, you can look at refinancing your car loan elsewhere, though be sure to research the process for principal-only car payments with the new lender thoroughly, or you may find yourself in the same situation again.

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