Is it better to pay off the interest or principal on my auto loan?
The quicker you’re able to pay down the principal of your loan – or the amount of money you’re borrowing – the less interest you’ll have to pay.
The amount of money you’re borrowing is known as your principal. The interest is the cost you pay for borrowing money. Interest and fees are generally paid before your payments go towards your loan’s principal.
When paying down an auto loan, your monthly payment generally will first be applied to any fees due – for example, late fees. Next, the remaining money from your payment will be applied to any interest due. This includes interest accrued from past payments. The rest will then be applied to the principal balance of your loan. Ultimately, the more you’re able to pay down your principal, the quicker you’re able to pay down your loan.
If you want to know more about how your payments are applied to your loan balance or read your loan documents, contact your lender or loan servicer. You can also review your monthly statement to confirm how your payment was applied.
You may be able to request that your lender or servicer apply more of your payment to your loan’s principal. Check your loan documents first.
Know before you shop for a car or auto loan
By asking questions before you shop, you’re more likely to get the best interest rates and loan terms for your budget. You can also save yourself valuable time and money, and reduce stress.