If you’re thinking about paying off your car loan, there are a few things you need to remember. Here are 5 easy ways to pay off your car loan faster.
With everyone budgets getting tighter, what is the best way to pay off your car loan quicker. Provided your lender doesn’t charge a prepayment penalty, paying off your car loan faster is a great way to save money. It means less interest paid and when you finish, you should have a few extra hundred dollars in your budget each month. There are a few tactics you can use to pay your loan off faster.
We’ll show you five effective strategies to accelerate your car loan payoff. So let’s get started!
There is no one path to paying off your car loan ahead of schedule. In fact, it makes sense to vary your approach. Once you have an idea of how much you could save, you can take advantage of a few methods to pay off your car loan faster.
1. Refinance with a new lender
Refinancing can be an easy way to pay off your loan faster. If you opt for a shorter loan term, you may be able to keep the same monthly payment provided you secure a lower interest rate, this could be challenging. Even if you make extra payments or round your payments up, you will naturally pay off your car loan faster.
That could mean making bi-monthly or two payments per month, that could put a larger strain on your budget. If you can swing twice a month payments you will save on your interest and it will accrue less in the end saving you more money and lower your balance total.
2. Round your payments to the nearest hundred
Similarly, rounding up your payments will have a small impact month-to-month but a substantial change overall. By rounding up to the nearest hundred, or at least the nearest whole number, you will slowly reduce the principal of your car loan. You will also get ahead of schedule, which will keep you ahead of interest and ease you into a faster payoff.
3. Opt out of unnecessary add-ons
If you added optional protection like gap insurance, an extended warranty or a service contract to your loan, contact your provider and cancel them. You should receive a prorated refund for the remainder while also lowering your monthly payment. But rather than putting that refund into your pocket, apply it to your loan. This way, you’ll owe less overall and benefit from a lump sum payment.
4. Make a large additional payment
When you get a refund on your tax returns, bonuses and other large lumps of cash that can be paid on the principle of your car loan. Any time you can reduce your principal by a few hundred dollars, it’s worth doing as it reduces the loan amount. As your loan balance decreases, more of your payment will go toward the principal, leading to an early payoff.
5. Cut down on expenses.
Take a close look at your monthly budget and identify areas where you can save. That may mean cancelling used subscriptions like the gym or Netflix type monthly payments which reduces unnecessary and unused expenses; you can redirect that money towards paying off your car loan faster.
Even if you are ahead of schedule, you should still pay your loan every month. This will keep interest from accruing which means more goes toward principal, further reducing the interest you pay. And maintaining regular payments when they aren’t required will lead to paying off your car loan early.
If you are having trouble making payments, always contact the lender and work with them to make it affordable. Not paying the monthly payment will cause a decline in your credit score and a possible repossession which will leave you without a vehicle.
Remember, paying off your car loan faster will not only save you money on interest but also provide you with greater financial freedom.
Lauren Fix is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host. A trusted automotive expert, Lauren provides an insider’s perspective on a wide range of automotive topics, energy and safety issues for both the auto industry and consumers. Her analysis is honest and straightforward.
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