How to Make a Payment to Principal Only
Strategically reduce your loan principal to save on interest and accelerate debt payoff. Understand the process for effective repayment.
Making additional payments on a loan can impact its cost and duration. A principal-only payment is an extra payment to directly reduce the loan principal balance. Unlike regular payments, which allocate funds among interest, principal, and sometimes escrow, targeting principal reduces total interest paid and can shorten the loan term.
Key Information Before Paying
Before initiating a principal-only payment, review your loan agreement (promissory note). This outlines loan terms, including clauses for extra payments or potential prepayment penalties. Some loan types may include prepayment penalties. These penalties are generally calculated as a percentage of the remaining loan amount or a certain number of months’ interest.
Contact your lender to understand their policies on principal-only payments. Policies vary by loan type (e.g., mortgages, auto, student loans). Confirm that the lender accepts principal-only payments, any minimum amounts, and submission instructions. This ensures proper application.
Understanding your principal balance and interest calculation provides context for extra payments. Most loans accrue daily interest on the principal. Reducing principal directly lowers the base for future interest, leading to greater savings. Confirming these details with your lender clarifies how your additional payment will affect your loan.
Making Your Principal-Only Payment
After confirming lender policies, proceed with your principal-only payment. Method depends on lender options, but always explicitly state it’s for principal reduction. Failing to specify this may apply funds to future interest or advance your next due date, not principal.
Many lenders offer online portals for principal-only payments. Navigate to the payment section; look for “principal reduction,” “extra payment,” or “additional principal.” These platforms provide a clear way to designate funds, bypassing interest and escrow. Follow prompts to allocate your payment.
To pay by phone, call your lender’s customer service. State your intent for a principal-only payment and the exact amount. Ask the representative to confirm the payment goes solely to principal, not future interest or other charges. This verbal confirmation helps ensure proper application.
To pay by mail, send a check with a cover letter. On the check memo line, write “Apply to Principal Only” to indicate intent. Your cover letter should state funds are for the loan’s principal balance. Obtain the correct mailing address from your loan statement or lender’s website for timely processing.
Confirming Your Payment
After submitting your principal-only payment, verify it was correctly applied to your loan’s principal balance. This ensures your efforts to reduce loan cost are successful. Payments usually process within 1-3 business days, though some methods may take longer to post.
Review your next loan statement for confirmation. It should reflect a reduced principal balance and show how the payment was allocated. Also check your online loan portal; most lenders update promptly. Look for changes in your principal balance reflecting the payment.
If expected changes aren’t visible within days, or for direct confirmation, contact your lender. Call customer service or send a secure message via their online portal to inquire about application. Request confirmation funds were applied solely to principal. If not applied as intended, contact your lender to rectify.