Are auto loan monthly payments a fixed amount or a percentage of the principle remaining?

That is on a 20k loan at 2% interest for 60mo, can I pay off 19,900 of it (the first month) and still make a 2% payment each month on the remaining 100 of principle? The idea here is to simply maintain the loan for 70mo at a negligible absolute cost each month so that this stays on my credit report for 70mo. Is this concept even possible? Does anyone know that this concept is called?


It depends on the bank, but in every case I have ever seen it is a fixed monthly amount. If you pay extra, they will have you make the same payment each month until the remaining balance is less than the monthly payment. In that month they will expect you to pay the remaining balance.

You won't be able to string it along the way you described.

  • Could you confirm that this is the case? That is, can you confirm that the minimum payments are not a percentage of the principle? – user29756 Jun 20 '15 at 23:56
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    The only way to confirm that would be to call your bank and get a copy of their loan agreement. The bank can set it up any way they want to. I am just saying the 5 car loans I have had in my life all worked the way I described. – JohnFx Jun 22 '15 at 1:38

Absent any agreement otherwise, between you and the lender, I believe it will be as @JohnFx has answered.

But, you may be able contact your lender to renegotiate the monthly payment after you have mostly paid it down.

The problem is, they are not likely to do it if the remaining balance is only $100 as the $2 or so that you will be paying in annual interest is less (probably considerably less) than their cost to carry (manage) the loan and send out monthly statements.

If you'd be willing to leave more of a remaining balance, perhaps a few thousand, they would be more likely to work with you on it. Of course that will increase your total cost, but you'd have an extra few thousand in cash to invest elsewhere, or to pay down some other debt.

From personal experience (many years ago) with a home mortgage, it worked like this...

For a while, we paid extra each month toward our mortgage (basically double payments, when we could). This "Extra" money paid reduced our principal balance so future payments went more toward principal and less toward interest than those future payments would have normally been.

But, this "Extra pay-down" of the principal was accounted for separately and it was reported to us on our monthly statement.

The kicker is, that if we made any monthly payments that were less than our normal monthly payment, the difference between our normal payment and the amount we paid, would be deducted from the "Extra pay-down" balance, and then everything would be recalculated. The "Extra pay-down" balance would then be adjusted up or down depending on whether our less than full payment was enough to cover the interest that was due. The same would happen if we made no payment. There was no penalty for doing this... it was just all automatic.

The effect was as if we had a "Savings" account where we could put money and earn the same interest rate as our mortgage interest rate. Well not exactly like a savings account because we couldn't touch (withdraw) that money for anything other than in connection with the mortgage.

As far as I can tell, this would have done exactly as you are trying to do. If we had paid most of our mortgage off and left only a small balance, and made small monthly payments (or no monthly payments), we would have only been charged interest each month on the remaining balance. I'm not sure if this sort of thing is common for mortgages today.

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