Question

Question: I’ve been making extra payments on my car TOWARDS PRINCIPAL ONLY at my credit union. Every single time some of it still gets applied to interest. Is that what’s supposed to happen? I thought if I wanted it ALL to go to principal, they could do that. I write a note and make sure they repeat back to me that I want it to go to principal only. I’m not sure how all that works, but my father in law thinks that’s wrong. Advice would be appreciated.  

Answer 1

Do you make it on the exact payment due date? It could be the way their system works that it always pays the interest first, so if your payment is due on the 1st, the interest is figured for that date, but if you don't pay it until the 5th, it will collect the 5 days interest first, and then go to principal. It shouldn't do that if it's paid on the exact due date.  

Answer 2

They will apply the payments to interest first and then principle. So if you make a 2nd payment it will cover accrued interest since last and then principle.  

Answer 3

How many days are between your normal payment and your extra payment. If you are paying at the same time it should all be going to principal but if you pay them on different days you will have a few days/weeks of accrued interest to pay first. Interest generally accrues daily.  

Comments

@hauteur I make “extra” payments all the time. Used to be weekly, but since the virus stuff started I haven’t been going weekly. Also, didn’t make a payment last month because we were stockpiling our emergency fund because hubby works in oil. I’m guessing that’s why I had to pay some interest, even though technically I didn’t have a payment due anyway so we didn’t miss a payment that was due.  

Answer 4

Thanks for asking this! This is something I've wondered about as well but was never able to have it explained in a way I could actually understand lol

Answer 5

I had same issue with my credit card previously. i believe you didnt make the payment on time and it went to proceed to knock off the high interest rate and not the principle.  

Comments

@six1 technically I don’t have a payment due until August. But I sort of understand that interest still gets accrued so I’m sure I’m just not understanding how it works. There have been times where I know all of it went to principal because it showed on my receipt.  

Answer 6

Ya know, I had never really thought about it, but I bet it depends what day I make the extra payment. My payment is due on the 2nd, but I’m so far ahead at this point that I haven’t had one due in months. I’ve still been making principal payments though.  

Comments

@unknow but since I haven’t been making a “normal” payment since I’m so far ahead, would that make a difference?  

---

@unknow it showed on my receipt that most of it went to principal, I paid $1400 and $64 of it is all that went to interest, but I’m still so confused.  

Answer 7

@owing Imagine you wrote what you owe on sticky notes for the length if your loan time. Say $400 each note x 60 notes (months). Some of that money is principal and some is interest. When you pay just on principal, the total amount owed becomes less and less so the interest is less as well. It would be like removing some of those notes from the END of the loan and throwing them away rather than adding them to the pile of paid notes. When you pay ahead, each payment removes a note but one that is NEXT in line. So you still make 60 payments of $400, you just make them in less time.  

Answer 8

Ask them if they can apply the payment without rolling the due date. I worked at a bank many years ago and if we didn’t code it correctly it would applying it to future months. Ideally you want to make the payments but still have your regular payment due the following month. If that is what has been happening you may see if they can go back and apply your extra payments correctly.  

Answer 9

I just deposited an extra payment on Monday towards principal only on a car loan. I wrote directly on the memo of check to be principal only. My credit union completed the task and called me to confirm it was done with the new balance. I'd included a note with explanation and also stating that I'd like my next payment auto drafted as scheduled. I sent my extra check about a week after my account auto drafts.  So it worked for me. But I called previously to discuss what I wanted to do. Credit union told me for principal only payments, they need to be done over the phone or via check payment; nothing through the website or their app.  

Comments

@bussey I physically go to the bank (drive thru) and write in bold on my check and the deposit slip and they repeat it back to me everytime that I want it to all go to principal. Now that I think about it, there have been times where no interest was taken out, but this time it was. I’m guessing because we didn’t make a regular payment this month. We have been stockpiling for our emergency fund in case my husband lost his job. So even though technically there was no new payment due, I’m sure there was interest being accrued. I made payments online when I first started and that’s how I got ahead because I didn’t know any better and there was no option to make it all go to principal.  

Answer 10

I would think you still have a monthly payment due with interest, but anything over your normal amount would go to principal if you request it that way. If you don’t have any payment due for months, you have pre-paid the payment but it won’t go to just principal.