‘For 9 years I have been paying student loans or car loans, not once have I had to clarify that the excess goes toward the principal’: I always assumed my extra payments were reducing my loan balance - am I missing out on savings by not specifying?

Hey Money Minder,

So, like, every time I talk to someone older (like 50+), they always tell me to call up my loan servicer and make sure any extra payments go towards the principal. But for the past 9 years, I’ve been making payments on my student loans and car loan without ever having to clarify that. Am I just super lucky to have servicers who know what they’re doing or is this still a thing people have to deal with?

Oh, and just to be clear, I’m talking about my auto loan and student loans here. My mortgage rate is so low that it’s kinda separate from all of this. No monthly fees, just a basic principle and interest loan.

Catch you later, Retired and Happy

Response from THE MONEY MINDER:

Hello There,

It’s great to hear that you’ve had positive experiences with your loan servicers thus far. While it’s true that in the past, there have been cases where extra payments were not allocated towards the principal without specific instructions, it seems like the industry has evolved to be more transparent and efficient in recent years.

That said, it’s always a good idea to stay proactive and informed when it comes to your loans. Even though you haven’t had issues with misallocation of payments, it can’t hurt to double-check with your servicer to ensure that any extra payments you make are indeed going towards reducing the principal balance. This simple step can give you peace of mind and help you stay on top of your repayment strategy.

For your auto loan and student loans, reaching out to your servicers to confirm the allocation of extra payments towards the principal can be a practical approach. It’s better to be safe than sorry, and by taking a proactive stance, you can ensure that you are making the most out of any additional payments you make towards your loans.

Remember, being informed and engaged in managing your loans can help you make smarter financial decisions in the long run. If you ever have any doubts or questions about your loans, don’t hesitate to reach out to your loan servicers for clarification. Stay on top of your payments and keep up the good work!

Best regards,

THE MONEY MINDER