7 Ways To Pay Off A Car Loan Faster
I had a long and interesting conversation with my friend regarding the importance of paying off a car loan faster than the loan term. The conversation opened my eyes, and I made up my mind to share this information with our wonderful readers.
You see, we are almost done with the first quarter of 2024, and one of the best decisions you can make is to pay off your car loan faster.
It may seem like having up to 72 months to pay back your car loan is good for your peace of mind. However, when you consider the car loan interest rates that you have to also pay every month, you may want think about the actual cost of the interest rate or APR.
Not only that, paying off your car loan faster will not just save you some good amount of money on interest but will also reduce your financial liabilities.
You can then channel these savings to other funds like building funds, investment fund, emergency funds or any other funds you may have.
Now that you have seen why it’s important you pay off your car loan faster, here are 7 ways you can achieve that:
Switch From Monthly to Biweekly Payments
Some months have more than 4 weeks. So, instead of making your payments monthly, consider switching to biweekly payments. The reason is that you get to make an extra payment by the end of the year. That is, instead of 12 payments, you will end up making 13 full payments each year. This can significantly reduce your loan balance and shorten your loan term. But before you do this, ensure to contact your lender to find out if they accept biweekly payments.
Round Up Your Payments
Want to pay off your loan even faster? Try rounding up your payments when next you make payments. For instance, if your monthly car loan payment is $250, round it up to $300. A simple use of a car loan payment calculator will reveal that you are making an extra $50 towards your principal. This alone can cut down your loan and interest term without having much significance on your finances.
Refinance Your Loan
If interest rates have dropped since you took out your car loan, a car loan refinance may be beneficial. If your credit score has improved, refinancing can offer a better interest rate. A car loan refinance could simply mean taking a loan from somewhere else to pay off the car loan while the interest rate is low. That way, you get to save on the interest rates that you would have paid in the coming months. However, it’s important that you check to make sure that the new loan doesn’t keep you in even more debt. And where possible, find a loan with a lower interest rate and shorter repayment term.
Do Not Skip Payments
Don’t fall for the temptation of skipping payments even when it doesn’t come with a penalty. If you skip a payment, the interest rate for that period will still be counted for you. What this means is that your interest will keep accruing. By all means stick to your payment schedule no matter what.
Make One Extra Payment Each Year
Earlier on in this article, I talked about making biweekly payments as against monthly payments. But if biweekly payment is too frequent for you, making one extra payment each year can help you pay off your car loan faster. You could use a bonuses, tax refunds or other unexpected income to do this.
Sign Up for Automatic Payments
Some lenders offer a lower interest rate if you opt for automatic payments. Invetopedia reported that this discount can reduce your interest rate by 0.25% dependingon your lender. Contact your lender to see if they offer an auto pay discount. Although it might seem like a small amount, when you use a car loan calculator, you will find that it adds up over time. You get to save some more money on interest.
Consider Being Frugal
Now, before you get upset with me, I don’t mean you should stay frugal forever. What I’m trying to say is that if you can evaluate your monthly spending and identify areas where you can cut costs, you can channel those savings towards your car loan repayment. Some areas you could cut costs include dining out frequently, canceling unused subscriptions, and other areas that aren’t so important. Once you are done paying off your car loan, you can go back to being a little extravagant.
When you shouldn’t pay off your car loan faster
Do not bother repaying your car loan faster if the following factors apply to you:
- the loan comes with a prepayment penalty
- your loan has precomputed interest that allows you to pay more interest at the beginning and lesser with successive months.
Summing It Up
I personally found that paying off my car loan faster made a significant impact on my credit utilization. It wasn’t easy, especially when it meant foregoing some luxuries, but the peace of mind and financial freedom gained from paying it off were well worth the sacrifice.
By implementing the strategies listed in this article, you can pay off your car loan faster and enjoy the benefits of being debt-free sooner. Remember, the key is consistency and commitment to your financial strategy.
