The sooner you can get out of debt, the better. Although loans for purchases such as homes and cars have a designated repayment period, accelerating the payoff can save you hundreds or thousands of dollars in interest, depending on loan amount and interest rate. Making additional payments is one way to accelerate the loan payoff.
Read over your loan document. Make sure extra payments will not trigger a fee or penalty. Some fixed-rate loan agreements do not allow extra payments.
Add the extra amount when you make your regular monthly loan payment.
Notate clearly that the payment should be applied to principal. If you do not specify, the lender might apply the extra payment to interest. To accelerate payoff, your goal is to reduce principal.
- Use online mortgage calculators to discover how much you can save by making additional payments.
- If your bank allows it, you can send an extra payment on a date different from your stated payment deadline, making payments on the 15th and the 30th of the month, for example. Read the loan document or contact the bank to see if it will accept extra payments on a date other than the prescribed due date.