Is it better to pay extra on your car loan principal or interest?

It is best to pay more towards your car loan principal. Because most car loans use simple interest, paying the principal reduces the amount you would have to pay in interest.

What is the 20/4/10 rule for car loans?

This approach breaks down one approach to setting your car budget. You make a 20 percent down payment on the loan balance and choose a four-year term. The resulting monthly payment should be under 10 percent of your income.

How often are you required to make payments on an auto loan?

Most commonly, you are expected to make monthly payments towards your auto loan. The number of months varies based on the loan term you have agreed to.

How to manage your auto loan payment

Written by

Rebecca Betterton,

Edited by

Pippin Wilbers,

Reviewed by

Emmanuel Nyame,

Expert verified

Published on September 20, 2024 | 3 min read

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A mixed race couple use a laptop computer to pay bills online, manage budget and prepare tax documents. They are in the kitchen of their home.

Key takeaways

To successfully manage an auto loan, budget accordingly, pay on time and aim for an early loan payoff.
Making biweekly payments can help you repay your auto loan faster and save money on interest, as long as early repayment fees don’t outweigh your savings.
If you’re having trouble paying, communicate with your lender and consider refinancing for potentially lower rates.

Your work isn’t over after you exit the dealership lot in your new vehicle. You must take important steps to manage your auto loan and ensure the vehicle remains yours. That means keeping up with your monthly payments — or making extra payments, if you can, to pay off your loan early.

In addition, refinancing could be a savvy move. After all, if you can qualify for a lower auto loan rate, you could save a ton on interest payments. Consider the following steps after getting an auto loan.

5 strategies for managing your auto loan

The most important part of managing your auto loan is making on-time payments. Here are some actions you can take to stay on top of your loan — or even pay it off ahead of schedule.

1. Be mindful of your budget

While you have already crunched the numbers to secure the right auto loan, you must keep your budget in mind. Now that payments have begun, you can gauge how they fit into other finances.

Experts advise that a new car payment should be no more than 10 to 15 percent of your take-home pay. If this number does not fit your spending, consider reviewing your budget to see if you can trim spending in other categories.

Edmunds’ Senior Consumer Advice Editor Ronald Montoya reinforces the importance of keeping your budget top of mind.

This is the key to the whole thing. If you shop within your means and are mindful of the other aspects of the car deal, the loan will always be manageable. Let's say you get approved for a loan between $30 and $50K. Just because the bank approved it doesn't mean it will be easy to manage at the top of the range. The less you spend, the easier the payments will be to handle. If you're shopping new and nothing looks good in your price range, consider going back a few years to a used model. — Ronald Montoya

: Is your car payment too expensive for your monthly budget?

2. Set up autopay

Arranging automatic payments each month on your auto loan is an excellent way to protect against accidentally missing payments and falling behind.

Most lenders offer this option. Some even boast additional discounts of 0.25 percent to 0.5 percent for using autopay.

Simply reach out to your lender to add your bank account information. Remember that some bank-funded auto loans require a checking account with the same financial institution if you want to use autopay.

3. Work toward early repayment

Early repayment means that the vehicle can become yours sooner. Plus, you will pay less interest over the loan’s lifetime. Try making extra or larger payments or applying tax refunds to the principal.

Also, if you experience an unexpected financial windfall, consider using the money to repay your auto loan early. Or use the sudden influx of funds to pay off your highest-interest debt, which can free up money to aggressively pay down your auto loan.

But before making this choice, use an early payoff calculator to determine if it’s the right move. Also, confirm that your lender does not enforce any fees for early repayment. If there’s a prepayment penalty, ensure your savings would outweigh it.

Bankrate tip

By making biweekly payments of half the monthly payment, you can make an extra full payment each year. This reduces the principal balance and minimizes the amount of interest accumulated.

4. Consider refinancing

If you struggle to make your auto payments — or if making regular payments has helped your credit score improve — refinancing your auto loan can help you get better rates and terms. Refinancing involves getting a new loan, potentially with an improved refinance rate or term length, and using it to repay your old loan.

Before moving ahead, calculate potential savings. If refinancing your auto loan is unlikely to save you money, but you have other outstanding debts, consider refinancing a different loan instead. You could free up extra cash to pay down the auto loan.

5. Communicate with your lender

Throughout your loan, it is best to keep an open line of communication with your lender. Regular contact ensures your loan is in good shape and protects you in the future. Building a strong relationship now will help manage potential issues.

If you, for example, think you might miss a payment, the door has already been opened for support. Remember, if trouble arises, the key is to reach out sooner rather than later.

The bottom line

Before signing for your loan, make sure the monthly payments work for your budget. Consider enrolling in autopay to avoid late payments. And, if possible, go the extra mile to pay the loan off early. You can also refinance your auto loan later down the line if it makes financial sense.

Most importantly, let the lender know if you run into difficulties affording payments. Good communication may make the lender more willing to be flexible.

FAQs about managing your auto loan payment

It is best to pay more towards your car loan principal. Because most car loans use simple interest, paying the principal reduces the amount you would have to pay in interest.
This approach breaks down one approach to setting your car budget. You make a 20 percent down payment on the loan balance and choose a four-year term. The resulting monthly payment should be under 10 percent of your income.
Most commonly, you are expected to make monthly payments towards your auto loan. The number of months varies based on the loan term you have agreed to.