Chase Makes It Just A Little Harder To Pay Down Your Car Loan Principal

If you want to pay down the principal on your Chase car loan by adding a little extra to your payment when you pay online…well, don’t bother. Sean discovered that paying a little extra on your auto loan isn’t so simple. Any extra money you might send is considered an early payment for next month…not applied to the principal. Sneaky.

I found out a sneaky detail about Chase Auto Loans today: unlike other banks (Wells Fargo comes to mind), when you over-pay your monthly payment Chase considers the extra cash an “early payment” and NOT principal reduction. This way, you can’t reduce your principal (and hence your interest payments) over the life of the loan. This wouldn’t be a huge deal if the online bill-pay options allowed you to choose between early payment or principal reduction (although why anyone would choose early payment is beyond me), but instead special checks have to be mailed to Chase Auto Finance for any principal reduction to occur.

I think this may only be an issue with online payments. Maybe it’s possible to apply extra payment to principal reduction with paper, but I bank solely online.

I find this practice duplicitous and misleading–frankly, I think it should be illegal. I figured I’d send Consumerist a heads up about it. I’m going to try to refinance the loan to a less-malicious lender that doesn’t make it so hard to pay your loan off early.

At least they’re not charging an early payment penalty, too.

Comments

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  1. leemikcee says:

    That sounds just about par for the course for Chase. Big name, small minded.

    • wrbwrx says:

      watch out when using automatic payments with chase because they will not stop just because you have paid off the loan. they will continue to take your money until you tell them to stop regardless of $0 balance.

  2. Grogey says:

    Same happens with my school loans from Citi

    • snobum says:

      But citi student loans have the option of applying an online payment to principal

      • skylar.sutton says:

        +1 – that’s the only reason I have no issue with the Citi Student Loans… simply uncheck the box and payments apply to principal now.

      • Supes says:

        Yep. Citi loans do have the option of applying directly to the principal.

        However, they do not have the option of applying it to a specific loan (I have 8 different loans with them, at varying interest rates). To pay off extra I have to mail it in every month, with explicit instructions to “apply to loan #XX,” and “apply directly to principal” and “do not advance payment.”

        Kind of a hassle, but it’s worth the price of a stamp. Saves a lot more money longterm.

    • jennsters says:

      That’s how all of my husband’s private student loans are too. And they don’t give us a choice. It specifically says that they apply it to the next month, not the principal.

  3. rpm773 says:

    Don’t the terms of the loan specify whether extra payments are put against the principal or against future installments?

    • Grasshopper says:

      How can you specify it is an extra payment as opposed to an early payment?

      • SpamDel says:

        It says “adding extra to your payment” and not “adding an extra payment”

        If my payment is $250 and I pay $300, Chase assumes I’m making a $50 early payment on next month.

        It’s silly and counterintuitive.

    • obits3 says:

      Thank you. You should always take the time to read the loan contract. Make the Bank print it out in full for you to read & keep a copy. My Credit Union had a clause in there about keeping the car outside of the state lines (I’m in a different state than them). I emailed them back about this and they struck it from the contract.

      You are signing a 5 year obligation! Please take a night and read it =)

      • JennQPublic says:

        Everyone should read EVERYTHING they sign, period. When I processed loans, I was shocked by how many people not only wouldn’t read the contract, but would rush me as I explained the terms to them. And whenever I go to sign contracts, the person having me sign usually looks confused when I start reading the contract, sometimes asking me if I’m ready to sign yet or getting pushy if it takes more than 30 seconds.

  4. humphrmi says:

    A lot of banks do this. It’s not new, I heard of it happening 20 years ago.

    In some (but not all) cases you can send a separate check with a letter or memo stating “Apply to principle”. Not as easy as making a single online payment, but effective.

    • Press1forDialTone says:

      I wouldn’t say to ‘apply to principle’ because Chase doesn’t have any principles,
      say “apply to principal” instead. Works much better, so does using the correct
      written word.

    • HannahK says:

      For 20 years banks have given you the ability to prepay your principal using paper but not online?

    • Splendid says:

      i discovered that exactly what you say is true yesterday. i went online and made an extra payment on my loan with my credit union. it didn’t apply the all of the $300 to the principal.

      i phoned them and found out that if i want to make a principal payment i need to call not just do it online. that is fine and now i know, but it would been more convenient if i could just do it online rather than have to phone each time.

  5. FuzzyWillow says:

    I find it interesting how banks design their web sites to make it easy to do what is in financial interest to them easy, but make what MOST of their customers want – difficult.

    Bank of America used to make you do a half dozen more mouse clicks and enter the amount if you want to pay your full credit card balance, yet if you wanted to make a min payment – single click.

    To their credit – they have since fixed that.

    • Supes says:

      I agree… I’ve found the same thing trying to pay back my student loans with Citi.

      Paying the minimum online = Easy, amount and date already put in for you
      Paying extra online = A few more clicks
      Having this extra not advance payment and go towards principal = Another click
      Applying extra payment towards the highest interest loan online = Impossible, requires physical letter

      It’s not that any of these steps are tough… it’s just these things should almost be automatic, and instead they require us to jump through hoops. If inevitably 2 or 3% of consumers don’t elect to jump through each hoop, that’s a lot of extra profit.

  6. KRF says:

    I hate to say it, but I think the OP’s doing something wrong.

    I just checked my statement from my Chase car loan, and the past two months where I’ve put additional money toward the payment, it’s very clearly split into “Payment” (the normal amount) and “Pri Payment” (the additional money I put toward the principle).

    • hills says:

      I agree – I can pay extra online with my Chase auto loan too….

      • Scurvythepirate says:

        Same here and I have Chase. I believe there is an “additional principal payment” box or something. I think he may just be paying more than the amount of his payment and expecting it to be added to the principal. Doesn’t work that way.

        I blame the OP. lol

    • rdm says:

      Agreed, I do this every month. You put your normal amount in the “payment” then anything additional goes into the “Additional principal payment” field.

    • DanRydell says:

      I wonder if he’s paying double or more. With my student loans I think it only gives me the option to make it an “extra payment” if I pay double or more. If I do that it advances the next payment due date so it won’t auto-pay the next month (I do believe it still reduces the principal regardless).

    • breese524 says:

      I agree. When I login to pay my Chase car loan, there are two fields, payment, where I enter my monthly payment amount and then under it is a field for principal reduction. The OP must be doing it wrong.

    • physics2010 says:

      User error. He is using BillPay rather than going directly to the account and paying from there.

  7. Kunavukke says:

    It is fairly simple if you have paper bills. I got a loan a few months ago so I haven’t set up online payments yet and I’m still mailing them checks. On the paper version, there’s a box on every bill to check if you’re making a principal reduction. I also thought that was odd so I read the fine print which said that any overpayment will be considered an early payment if that box is not checked. It is surprising that there isn’t a similar way to indicate that when paying online. It may be poor design instead of maliciousness, but I’m sure they’re in no hurry to fix it.

  8. Commenter24 says:

    Online payments are offered as a convenience. If you don’t like the way the online payment system is setup you can, as noted by the OP, just mail in a check.

    • pecan 3.14159265 says:

      This is what I do. I hate writing checks, but I do it for the car payment because if you mail it in, it automatically counts as a principal payment, but if you do it online, it doesn’t, and there’s no way for the system to distinguish. I talked to the customer service people and they basically told me that the easiest way around the system is to just send a check.

  9. D0rk says:

    My auto loan is with my credit union, and I had a rollercoaster of various experiences with this topic on my loan.

    For the first few years, I received a slip booklet each year, and it had marked lines for additional principal. Starting last year, they did away with the booklets and started sending out a single slip every month. This no longer had an additional principal line. I manually noted on the slip that additional money should be applied to principal, and about 70% of the time, it worked. Suddenly the slips stopped completely, even though I had more than a year left in payments.
    Luckily a local branch opened up right next to my house, so I do it there now. The teller is almost always surprised that i’m paying additional to principal, but for the most part, they get it and apply it correctly.

  10. sirwired says:

    Undirected extra payments for any type of fixed installment loan always act as a credit towards the next payment. It has been this way for as long as I know of.

    Yes, this is a website shortcoming that you can’t direct the payment, but the defaults are perfectly standard, and probably part of the promissory note.

    • Loias supports harsher punishments against corporations says:

      The ability to apply to principal electronically is an incredibly easy matter for their programming staff to accomplish.

    • KRF says:

      When I pay my car loan, it says “Additional principal reduction payment.” So either I’m logging into a different website than the OP, or he’s just not putting in the info correctly.

      From my perspective, Chase programmed the site right.

    • Aennan says:

      Oddly enough, my mortgage is backwards. Any extra payment is applied directly to principal. They will only apply money as a regular payment if there is a current “bill due”. Found this out after I tried to pay my Dec payment a few weeks early.

  11. Jack Straw from Wichita says:

    Yeah same thing on my student loans, online I can “payoff the entire amount” of specific loans on some sites, others I’d have to pay the entire balance.

  12. squirrel says:

    So what happens when you overpay the next month?

    Every time you overpay and stick to it, you are shortening the loan. What will Chase do if you prepay the next 20 payments when 20 months are left on the loan? Show zero balance and no payments due for nearly 2 years?

    Hmmm.. never mind. They would do that, wouldn’t they?

    • Liam Kinkaid says:

      The issue with that is that interest is still accruing on the total principal still outstanding if overpayments are being credited as a “next month’s payment” instead of as a reduction in principal. So you still end up paying more that way.

  13. allknowingtomato says:

    This is par for the course for most loans. You must specifically designate an additional payment as to be put toward the principal only, otherwise it’s an early payment. This default repayment methodology long predates both the internet and online consumer banking.

    My grandfather used to stress to me (he was a bank manager) that I should always make extra payments on my car loan/mortgage, and that I should always write “put towards principal only” in the memo line, and include with it a letter instructing that my additional payment should go towards principal.

    Now, a prepayment PENALTY scheme might be a problem, but that would have to have been disclosed in the original terms of the loan. such a scheme would stop you from lowering your effective interest rate by penalizing you for making early payments towards principal.

  14. slyabney says:

    Toyota does the same thing through their on-line system. Every extra amount I pay reduces the next month’s payment by the same amount. Although, I’m fine with it since this method has come in handy for the end of the year when generally keep the difference between the usual payment and my budgeted amount for the holidays.

    But I can see the problem this causes, but it’s not just Chase that’s doing it.

    • tingeyga says:

      In Toyota’s case the loan agreement states that any extra principal will be treated as a payment towards next months principle.

  15. Miss Dev (The Beer Sherpa) says:

    When I had my car loan (paid off in June!), no one told me how they worked. My father just told me to pay as much as I could each month, and I wouldn’t pay as much interest. It was only after doing the math after a few years of paying that I realized that they weren’t applying my extra money to the principal, just to the next month’s payments. It was so frustrating. By that time, I only had a few months left of payments, so it made very little different to apply my over payments to the principal. I wish I had been an educated consumer earlier!

  16. bdsakx says:

    Hmm, I thought I was in the same situation with my car loan, but what I’ve noticed was extra payments still go to the principal, but next months payment due is reduced by the amount I paid extra. It’s a bit dirty though, because the reduced payment is so enticing. If I pay the reduced payment, I’m about right back where I started when all the interest adds up again. Then, the normal payment the next month ends up being very little principle, and a lot of interest. The only way to keep ahead is assume you’re paying the minimum and ignore what the statement says.

    • wrjohnston91283 says:

      Same thing here – I’m paying more than the regular payment, but my principal is falling, as long as I continue to pay more than the regular payment.

  17. AustinTXProgrammer says:

    I don’t remember having this problem when I had a chase auto loan (nearly 5 years ago). But Nissan does the same thing at NMAC. It does eventually help you pay off the loan early, but does cost you more interest. generally the overage keeps rolling over until it equals a payment.

  18. dolemite says:

    I’m kind of confused on this as well. I use BB&T. My car payment is $240 a month. Around $55 goes towards interest, and the rest goes towards principal. I’ve recently increased the payments to around $340 a month. Still…$55 is going towards interest, and the rest towards principal. BUT at the top of my account, it says my next payment due is $75…so it’s kind of like they are applying some of it towards my next payment too?

    • Oranges w/ Cheese says:

      Some car loans have interest already calculated and bundled in. My loan from BOA was like this. My payment was $235 monthly and I usually paid about $400. Didn’t lessen the interest at all, just got it off my back faster.

    • Liam Kinkaid says:

      Is it exactly the same amount of interest every month, or is it steadily decreasing, even if by small amounts? If it’s decreasing, the overpayment is being applied to principal correctly and they’re telling you to pay less next month so they can get back “on schedule” and still earn the same amount of interest over the life of the loan.

      • Liam Kinkaid says:

        Oh, I forgot to add this. It’s not steadily decreasing, it doesn’t mean they’re not calculating it properly. They might just be displaying their predetermined amortization schedule for the interest amounts charged to the loan. Yeah, it’s programatically lazy for them to do this, but it doesn’t necessarily mean they’re screwing you.

      • dolemite says:

        It’s going down each month. A few months ago it was $65 a month in interest, now down to $55.
        Ah, so they are “letting” me make a smaller payment so they can get the full interest back out of me heh.

        • Liam Kinkaid says:

          Exactly. If this is your highest interest debt, pay what you can to get rid of it. To me, it’s a huge motivator to see that amount applied to interest decreasing every month!

  19. Oranges w/ Cheese says:

    Don’t most car loans have predetermined interest already anyway?
    That was how my BOA loan worked, I overpaid but it didn’t reduce the interest I paid at all because that had already been built into the total of the loan

    • qwickone says:

      Example: Say you borrow $20K for a car, when you finish paying off you’re loan, you would have repaid $25K, the extra $5K being interest charges. Your payments are $250 every month, but the first month, you pay $249 interest and $1 principal. The second month you pay $248 interest and $2 principal. If you made a $300 payment the second month, $248 should go to interest and $52 should go to principal. This is how an amortizing loan works. (None of these numbers are correct, but the I’m just trying to explain the concept – look up “amortization schedule” for more detail).

      • qwickone says:

        And in the article, they are holding the extra $50 until the next month. This may be allowed by the agreement the OP signed, but I don’t believe that’s the general practice used for term loans (a loan where you repay over a set “term”, or period of time, as opposed to revolving loans, like credit cards)

  20. captadam says:

    Say (for the sake of simplicity) that your scheduled payment is $200 per month and you decide you’re going to pay an extra $100. After ten months of doing this, you would have spend an extra $1000–or, five full months of payments. Does this mean that the next five months of payments are considered paid? Where does your extra money go at that point? Is it held in escrow and then applied as each month comes? So, if you should make five years’ of payments at the end of, say, year number three, is your loan active for another two years, with those “early” payments being applied month after month?

  21. hills says:

    I have a Chase auto loan & I can pay extra online – here’s how…
    “make a payment”
    choose your bank account that’s linked
    fill in the “payment amount”
    under that box there’s another box titled, “ADDITIONAL PRINCIPAL REDUCTION PAYMENT” (caps added by me) – all you need to do is fill in there the extra you want to pay, and then Chase will add them together to give you the amount of your total payment.
    Pretty straightforward – so either the OP’s loan doesn’t have this option or he’s not doing it right…

    Nothing sneaky, duplicitous, or misleading – this is my 3rd auto loan with Chase and I’ve always been able to add extra $ online.

    • Scurvythepirate says:

      I agreed with you in your other post. OP is doing it wrong. No story here, move on sheeple.

    • GearheadGeek says:

      The OP is probably not “doing it wrong” they are paying from their checking account with electronic bill paying, rather than linking their checking account to their Chase auto loan on the Chase site.

      • hills says:

        I see what you mean – but it is possible to do online (so by using billpay IMO OP is “doing it wrong”) – all the OP needs to do is link his checking account – since the OP banks “solely online” this will be really easy – OP, try it out and let us know if it works (though it takes a few days to verify/link acct)…

      • psm321 says:

        I never understood why people use bill pay instead of paying the recipient through their own online system. Seems like way too much potential for problems with only minimal added convenience

  22. Liam Kinkaid says:

    Here’s what I do to track my student loans, serviced through ACS. Thankfully they seem to appropriately apply payment overages toward principal without making it complicated and they show a nice chart showing payment, amount applied toward principal, and amount applied toward interest. Not so nice, they keep sending me emails telling me I’m prepaid and I don’t need to send in a payment.

    Anyhoot, here’s my hint: Make an amortization schedule in Excel tracking your payments. The columns should be Payment Number, Payment Date, Payment Amount, Interest Rate, Amount Applied to Interest, Amount Applied to Principal, and Declining Balance. The first four columns should be self explanatory.

    Amount Applied to Interest = previous row’s Declining Balance * Interest Rate * (this row’s Payment Date – previous row’s Payment Date) / 365. (365 might be 360 in some cases, YMMV.)

    Amount Applied to Principal = Payment Amount – Amount Applied to Interest.

    Declining Balance = previous row’s Declining Balance – Amount Applied to Principal.

    It’s a great motivational tool for me because I can see when I make an overpayment how the balance decreases. Hope this helps someone.

  23. chiieddy says:

    My mother always taught me to write ‘Please apply extra to principle’ on the memo lines of checks because it USED to be standard practice to do this. It’s more recent that this hasn’t been required.

  24. chiieddy says:

    My mother always taught me to write “Please apply extra to principle” on the memo lines of checks because it USED to be standard practice to do this. It’s more recent that this hasn’t been required.

  25. AllanG54 says:

    I suspect this is because the loan is based on precomputed rather than simple interest. So, if you’re late a day or two the interest amount is still the same as opposed to simple interest where the amount of interest charged will go up or down based on whether the payment was more or less than 30 days from the last payment.

  26. Sky75 says:

    Actually my Wells Fargo auto loan does this too – if I pay extra, it goes to my next payment. I always assumed I’d have to call them to specify it has to go to the principal, I just haven’t gotten around to it yet since I’m not financially in a position to pay more than like $2 extra.

  27. inputhike says:

    Actually, Wells Fargo and Toyota Financial both do the exact same thing. It seems to be quite common.

  28. MaxH42 thinks RecordStoreToughGuy got a raw deal says:

    They did this to me 15 years ago with my student loan payments, until I called and basically browbeat them into promising to apply all excess payments to the principal from that point forward.

  29. Suburban Idiot says:

    I had exactly the opposite problem with Chase Mortgage.

    I sometimes do extra contract work which results in a larger check. Instead of paying down principal, it made more sense to me to pay future months in advance with that extra money. But when I made the payments, they were invariably applied as extra principal payments.

    A quick call got it sorted out and corrected to my satisfaction, but it’s interesting that Chase Mortgage and Chase Auto Loans apparently treat the same situation completely differently.

  30. Robert Nagel says:

    If they didn’t do that we would be reading about some unfortunate who sent in an extra payment to cover the next month’s bill to cover for their absence due to a trip overseas. They would complain that they got hit with a penalty and that the bank should have known that it was a pre-payment and not an extra payment.
    They’re not mind readers. Crooked, but not mind readers.

    • qwickone says:

      We HAVE read that story on Consumerist! I’m not usually on the bank’s side, but in this case, they’re damned if they do, and damned if they don’t.

  31. ttk says:

    They do the same thing with Mortgages.

  32. ClaudeKabobbing says:

    Oh Great, I just checked my loan thru Wells Fargo, looks like the same thing is happening

  33. mikec041 says:

    Paid an extra payment to Wells Fargo on my mortgage using their website and the area for principal only payment. Wells Fargo applied it as an early payment then after a phone call they “corrected” it two weeks later they reversed the correction and made it another “early payment”. Took them 3 months and a load of phone calls to them to finally credit it to my principal.

  34. catastrophegirl chooses not to fly says:

    my credit union holds both my car and mortgage loans. fortunately they automatically apply any overpayment made on a different day than the due date toward the principal. if i wanted to make it an early payment, then i’d have to go through the hassle of calling or going in personally.
    i love that they assume i’d rather reduce my interest in the long run.

  35. mobiuschic42 says:

    Sally Mae (the huge student loan house) works the same way. I sent a letter specifically asking that a payment be applied to a particular loan (you can’t pay a specific loan online – if you make a payment, it’s divided among your loans, in my case, both loans with a 2% interest rate and 6.8% rates) and that I continue to be charged monthly for this loan.
    They applied it to the correct loan, but, low and behold – next pay date? Oct 2015.

  36. Speak says:

    My car loan is from Chase also and I don’t do on-line with them because I do not have a Chase bank account. When I went to try and set up an online payment they wanted I think a $10 fee per transaction. I could pay extra on my principle, but it was treated as 2 separate transactions, 1 to pay the bill & 1 to pay extra. The 2 transactions made it a $20 fee to pay what I spend less than $0.50 to mail 1 check for both and fill out the paperwork properly. If I would have signed up for auto pay (no fee) it would have still cost me an extra $10 if I wanted to make a payment for principle reduction, auto pay would have only covered the actual cost of the current bill.

  37. Brunette Bookworm says:

    How strange. I pay my Honda car payment online and it’s financed through them. When you make a payment there is a section for the regular payment and it says if you pay extra it may decrese your next bill but right below that is another box to add extra payments towards the principal. Their site is very specific about where each amount goes to. Too bad every site isn’t that way.

  38. common_sense84 says:

    Everyone does this. It is pretty standard. Sallie Mae only allows you to pay off principal by sending a physical check with written instructions on how the money should apply.

  39. rinehj says:

    Yeah, I find this odd as well. I pay extra on my home mortgage each month, which goes toward the principal. But on my car loan, if I pay extra, it goes to the early payment not directly to the principal of the loan amount. I called and they assured me that it was going towards the principal but after so many months, the amount due showing on my monthly bill is now 0.

    I have tried to call them once or twice about it but continue to get the run around.

  40. aleck says:

    There is nothing sneaky, malicious or evil about it. You are probably the only person who pays Chase Auto Loan not only on time, but even add extra, so there is very little demand to make this feature available online.

    There is nothing illegal about it, read your contract. It is all spelled out there.

  41. NumberSix says:

    Seems to be the case with my CenterOne Financial loan too. I’ve been paying huge amounts and the amount I owe is going down, but my next payment due date is like September 2011.

  42. psm321 says:

    I have some loans that do BOTH. If you pay more than a payment’s worth extra, it will reduce your principal and also make it so there’s no payment due next month

  43. pentium4borg says:

    I ad a car loan through Chase that I paid off early. There’s no option to pay extra towards the loan principal on their web site, so I had to mail a check each time I paid towards principal with explicit instructions to apply it to the principal balance.

  44. Das G says:

    I’m pretty sure this is par for the course. Every auto loan that I’ve ever made prepayments on, I’ve had to notify them that I want it to come of the principal. Otherwise, it’s considered an early payment. I’ve had loans with Suntrust, Wells Fargo, etc. This is actually and ongoing thing with my wife and I. I always tell her to pay principal, but she tends to neglect to tell them. It doesn’t matter so much these days. Our last loan was 1.9% financing, and our current one is 0%.

  45. dangermike says:

    Are you sure that they aren’t just pushing back your next payment date so as to allow interest to compound to a level equivalent to what it would be if you had simply maintained a monthly schedule?

  46. Ajith Antony says:

    OP Should inspect his note and make sure it isn’t just a precomputed loan. That is pretty common for auto financing, or at least it was 10yrs ago. I think it is still legal on some states:

    http://en.wikipedia.org/wiki/Rule_of_78s

  47. thesalad says:

    I can pay down the principal on my Chase auto loan very easily. When I make my payment online, there is a box below your payment that asks if you would like to apply anything towards a principal reduction. I banke solely online, and it’s an option right on your screen. If you dont’ see this call chase and find out why!

  48. arizonaadam says:

    Chase services my Subaru-originated loan and applies extra payments to principal. I think you’ve got a servicer that is just applying the terms of your loan contract. I would wonder about this if I hadn’t JUST made a higher-than-required payment and had it applied properly to principal.

  49. howie_in_az says:

    Wachovia Dealer Services, now owned by Wells Fargo, did the exact same thing to me. I had to call them every month and complain.

  50. one says:

    They play the same game if you have a personal loan out or a credit card cash loan out with them also. They don’t let you pay more than the alloted amount and if you want to pay it off early they don’t let you calculate the interest and pay it off. They make you wait until the next billing so that you will owe them some more money.
    Stay away from that awful corporate bank. If enough people close their accounts and go elsewhere, maybe it will make a dent in their lifestyle.
    The people that work for Chase are not allowed access to much of anything.