How to Pay a Car Note Twice a Month to Cut Interest

Interest on most automobile loans is calculated over the term of the loan. Making multiple payments per month can reduce the total amount due on the loan and help pay the loan off more quickly. This method works because interest is paid only once per month. The second bimonthly payment is devoted to the loan principal.

Instructions

1

Calculate the periodic interest rate. Find the stated rate of interest in your loan promissory note and divide by the number of payment periods in a year.

2

Consult the amortization schedule or a recent statement from your lender to determine the principal balance remaining on the loan.

3

Calculate the amount of your next monthly payment that will be directed to interest. Multiply the principal balance remaining by the periodic interest rate.

4

Subtract the amount of your next monthly payment directed to interest from the full amount of the monthly payment. Reduce the principal amount remaining on the loan by this amount.

5

Indicate in your second monthly payment that it should be "applied to principal only" on the memo line of the check or on the payment stub. Deduct the complete payment amount from the principal amount remaining. Interest is calculated monthly; there is no interest accrued mid-month.

6

Repeat steps 3 and 4 each time you make an extra payment. Your extra monthly payment reduces the principal balance on which interest accrues because no portion of the mid-month payment is attributable to interest.