What a principal-only payment is and why you'd make one
A principal-only payment is money you send to your lender that goes entirely toward reducing the balance you owe, with none of it covering interest charges for that month. On a normal payment, your lender takes its cut for interest first, then applies what's left to principal. A principal-only payment skips the interest step.
You make one when you want to reduce what you owe faster without waiting for your regular payment schedule to do it. This shrinks the total amount of interest you'll pay over the life of the loan, because interest is calculated on your remaining balance—a smaller balance means smaller interest charges going forward.
Principal-only payments work on mortgages, auto loans, personal loans, and student loans. They don't work on credit cards, which operate on a different system where you pay interest on whatever balance remains at the end of your billing cycle, regardless of how much principal you've paid.
Key Takeaways
- A principal-only payment must be sent with clear instructions to your lender stating it should not cover the current month's interest—send it as a separate transaction from your regular payment.
- You can make a principal-only payment through your lender's online portal, by phone, by mail with a written note, or sometimes through automatic transfers, depending on what your lender allows.
- Your regular monthly payment is still due on its normal date; a principal-only payment is extra and does not replace it.
- Some lenders charge fees for principal-only payments or restrict how often you can make them, so check your loan documents or contact your servicer before sending money.
- Principal-only payments reduce your loan term and total interest paid, but they do not lower your monthly payment amount unless you refinance or modify the loan.
How to send a principal-only payment through your lender's website
Most lenders now offer an online portal where you can log in and make extra payments. Look for a button or link labeled "Make a Payment," "Extra Payment," "Additional Payment," or "Pay Down Principal." Some portals have a checkbox or dropdown menu that lets you specify that the payment should go to principal only.
If you don't see that option, look for a way to add a note or memo to your payment. Write something like "Principal only—do not apply to interest" or "Extra principal payment." Then send the payment as a separate transaction from your regular monthly payment. Do not combine them, because the lender may apply the combined amount to interest first.
After you submit, check your account within 24 to 48 hours to confirm the payment posted and that it was applied to principal, not interest. If it went to interest instead, contact your lender immediately and ask them to reverse it and reapply it correctly. Most lenders will do this without argument if you catch it quickly.
Paying by phone or mail if your lender doesn't have an online option
Call your lender's customer service line and tell them you want to make a principal-only payment. Have your loan number ready. Ask the representative to confirm that your payment will go to principal only and not be applied to interest or next month's payment. Get their name and the date and time of the call in case you need to dispute how the payment was applied later.
If you prefer to mail a check, write "Principal Only" on the memo line and include a separate letter with your payment stating the same thing. Mail it to the address your lender provides for payments—not the general mailing address, which may route it to the wrong department. Keep a copy of your letter and the cancelled check or bank record as proof of what you sent and when.
Mailed payments take longer to post—typically 5 to 10 business days depending on mail delivery and your lender's processing speed. Call your lender a week after mailing to confirm it arrived and was applied correctly.
What happens if your lender won't let you make a principal-only payment
Some lenders, particularly those servicing federal student loans or certain mortgage products, do not allow borrowers to make principal-only payments. They require that any payment above the minimum cover interest first, then principal. This is written into your loan agreement.
If your lender falls into this category, you have two options. The first is to make a larger regular payment than required—if your payment is $500 and you send $750, the extra $250 will go to principal after interest is covered. This achieves the same result as a principal-only payment but requires you to pay interest on that month's balance first.
The second option is to refinance your loan with a different lender that does allow principal-only payments. This involves applying for a new loan, paying off the old one, and starting fresh with new terms. Refinancing costs money in fees and may change your interest rate, so weigh whether the benefit of making principal-only payments outweighs the cost of refinancing.
Fees and restrictions your lender may charge
Some lenders charge a fee for making extra payments, particularly if you make them frequently or through certain channels. A few mortgage lenders, for example, charge $25 to $50 per extra payment. Auto lenders sometimes restrict you to one or two extra payments per year without a fee. Check your loan documents or call your lender to ask about fees before you send money.
If fees apply and you want to avoid them, space out your principal-only payments. Instead of sending one every month, send one every three or six months. This reduces the number of transactions and may keep you under any fee threshold.
Some lenders also require a minimum payment amount for principal-only payments—for example, $500 or $1,000. If you want to send less than that, ask whether you can combine it with your regular payment instead, or whether you can make a larger regular payment that covers interest plus extra principal.
How principal-only payments affect your loan timeline and total cost
Each principal-only payment reduces the balance on which your lender calculates next month's interest. If you have a $200,000 mortgage at 6% interest and you make a $10,000 principal-only payment, your next month's interest is calculated on $190,000 instead of $200,000. That saves you roughly $50 in interest that month alone.
Over the life of the loan, principal-only payments can save you tens of thousands of dollars in interest and shorten your loan term by months or years. A $10,000 principal-only payment on a 30-year mortgage can cut two to three years off your payoff date, depending on your interest rate and how much principal you've already paid.
However, principal-only payments do not lower your monthly payment amount. If your mortgage payment is $1,200 a month, it stays $1,200 a month even after you've made principal-only payments. The only way to lower your monthly payment is to refinance the loan with a new term or to modify the loan through your lender's formal process.
Common mistakes to avoid when making principal-only payments
The biggest mistake is not giving clear instructions. If you send extra money without specifying that it should go to principal only, your lender may apply it to next month's payment or to interest. Always use the word "principal" in your instructions, and always send the principal-only payment as a separate transaction from your regular payment.
Another mistake is assuming your regular payment is covered. Your monthly payment is still due on its regular date, even if you've made a principal-only payment. If you send $500 principal-only but your payment is $800, you still owe $800 on the due date. Missing your regular payment will damage your credit and trigger late fees, even if you've sent extra principal money.
A third mistake is not confirming the payment posted correctly. Always check your account statement or call your lender within a few days to verify that the money went to principal, not interest or next month's payment. If it went to the wrong place, ask your lender to reverse it and reapply it immediately.
Frequently Asked Questions
Can I make a principal-only payment if I'm behind on my loan?
Most lenders will not accept a principal-only payment if you're behind. They will apply any money you send to past-due interest and principal first, then to current interest. Contact your lender to discuss a payment plan or catch-up arrangement before attempting a principal-only payment.
Do principal-only payments show up on my credit report?
No. Your credit report shows your payment history and your current balance, but it does not distinguish between regular payments and principal-only payments. Making principal-only payments will lower your reported balance over time, which can improve your credit score by reducing your credit utilization ratio.
What if my lender applies my principal-only payment to interest by mistake?
Call your lender immediately and ask them to reverse the payment and reapply it to principal only. Most lenders will do this without argument if you catch it within a few days. Get the name of the representative and the date of the call. If they refuse, file a complaint with your state's attorney general or the Consumer Financial Protection Bureau.
Can I make a principal-only payment on a credit card?
No. Credit cards do not have a principal-only option. Any payment you make goes to your current balance, and interest is charged on whatever balance remains at the end of your billing cycle. To pay down a credit card faster, make payments larger than the minimum, which reduces the balance on which interest is charged.
Will making principal-only payments hurt my credit score?
No. Principal-only payments lower your balance, which reduces your credit utilization and can improve your score. They do not trigger any negative reporting as long as you continue to make your regular monthly payment on time.