How to Paydown a Car Loan

Most car loans are set up for a term of 60 months, or five years. For much of that time, your car loan will be "upside-down" because the car depreciates in value faster than you pay the loan. Being upside-down can be problematic if you want to trade in your car for a new one, because what you still owe will be added to your new loan. You may want to pay your car loan off faster to get of this upside-down situation, reduce your debt-to-income ratio or just to reduce your monthly expenses.

Instructions

1

Check you car loan for a "pre-payment clause." A pre-payment clause prevents you from being able to reduce your interest on the loan by making extra payments. In this case, any extra payments you make would only extend the time until your next payment is due. If there is no pre-payment clause, you can paydown your car loan early.

2

Make your monthly payments as normal.

3

Make additional payments or partial payments as you are able. Specify that these additional payments should be applied to the principal of the loan.

4

Check your loan balance and verify that your extra payments were actually applied to the principal. If they weren't, call your lender to have the problem corrected.