How to Make Additional Payments on My Loan

The overall cost of any loan varies based on the amount of interest paid over the life of the loan. The longer the term, or length, of the loan, the more money the borrower spends on interest. One way to reduce the overall cost of the loan is to make additional payments on the debt. The more payments made prior to the due date, the shorter the term of the loan. This can make a big difference. For example, with a 30-year fixed mortgage, one extra payment per year reduces the term by seven full years.

Instructions

1

Create a family budget. Look at your most recent checking account statement. Write down each expense and lump those expenses into categories (such as food, entertainment and household expenses). If you do not have a checking account, write down each expenditure spent for a whole month to use as the basis of your budget.

2

Look for areas in your budget where you could trim expenses. For example, research cheaper cable or cell phone plans.

3

Create a savings fund by including it as a line item in your budget to save at least one extra loan payment per year. Use the budget cuts created in the previous step to help fund this project.

4

Use the savings fund to make a minimum of one extra loan payment per year. If you simply make an extra payment and do not designate it towards principle reduction, the payment will be applied to future payments. This means that you will always be one month ahead on your loan. While this may help you if you mistakenly miss a month's payment, it will not reduce the overall interest paid on your debt. To reduce the principle and shorten the term of the loan, designate the payment as a principle reduction payment. This means that the extra monies paid will lower the principle and not be applied to future payments.