Last updated on January 7th, 2023 at 03:37 am
If you’re like most people, you probably dread car loan payments. They take a big bite out of your budget, and they never seem to end. But what if I told you there was a way to pay off a car loan faster–even in as little as two years?
Today, I’m going to share with you some tips and tricks that will help you do just that! By following these simple guidelines, you can get rid of that car loan payment sooner than you thought possible.
Here’s How to Pay Off a Car Loan Faster
Refinance your loan
If you’re dealing with a high-interest loan, refinancing can be a great way to reduce your monthly payments and pay off your car more quickly. If your lender isn’t willing to give you a lower interest rate, consider shopping around for a better deal. Other lenders may offer lower loan rates and more flexible payment options.
Make extra payments
Making extra payments toward your car loan can help you pay it off faster. Try to make larger lump-sum payments whenever possible, as this will help reduce the principal balance more quickly. You can also add a few extra dollars to each monthly payment, which will have a similar effect.
Create a budget
Creating a budget helps you manage your expenses and gives you a better understanding of where your money is going. Make sure to include an amount towards the car loan in your budget (and any extra payments you want to make) so that you can pay off your car loan faster.
Find extra money
Finding extra money through side hustles, cutting back on expenses, and other creative ideas can help you pay off a car loan faster. You could also consider taking advantage of windfalls or tax refunds to make a one-time payment toward the loan balance.
Cancel any unnecessary add-ons
Make sure to cancel any unnecessary add-ons or insurance policies related to your car loan. When you purchased your car, you may have added things like an extended warranty or gap insurance. If you don’t need these extras, cancel them ASAP! This should result in lower monthly payments as well as a pro-rated refund. If you do happen to get some money back, you can use it to make a one-time payment toward the loan balance.
Create a debt repayment plan
Creating a debt repayment plan can help you stay on track and motivated to pay off a car loan faster. Establish your payment goals, and stick to them. Remember, you can also consider making larger payments towards the principal balance of your loan if you have the means.
Round each payment up to the nearest hundred
Rounding up your monthly payments to the nearest hundred can help you pay off the loan more quickly. For instance, if your payment is $418, round it up to $500. This will help reduce the amount of time it takes to pay off the loan since you’re essentially making an extra payment each month.
Why you should pay your car loan off early
Paying off your car loan as soon as possible is a great idea for several reasons.
- The longer you pay on your loan, the more money it will cost you in interest. Most loans are for 36 to 84 months, and the longer your loan, the more interest you will pay. While the monthly payment may be lower, you will end up paying significantly more by the end of your term.
- Paying off your loan early will help to improve your credit score. By showing that you are responsible with your payments, you can demonstrate to future lenders that you are a good candidate for a loan.
- Finally, paying off your car loan early will give you peace of mind and one less bill to worry about each month.
So if you have the extra cash, paying off your car loan early is a wise financial decision.
Things to look out for when paying your car loan off early
If you’re thinking about paying a car loan off early, there are a few things you’ll want to keep in mind.
When you take out a car loan, the lender may charge a repayment penalty if you pay off the loan early. The amount of the penalty can vary depending on the lender and the terms of the loan, but it is typically a percentage of the outstanding balance.
For example, if you have a $20,000 car loan with a 5% repayment penalty, and you pay off the loan early, you would owe an additional $1,000. The repayment penalty is designed to compensate the lender for the interest that they would have earned if you had kept the loan for the full term. However, it can be a significant cost if depending on how early you pay off the loan.
Make sure to ask your lender if there are any early repayment penalties before you pay off your car loan. If there is a penalty, there are a few ways to avoid or minimize the repayment penalty.
Some lenders will waive the penalty if you refinance the loan with them. Alternatively, you can shop around for a new loan with a lower interest rate and shorter term. If you do this, be sure to factor in any prepayment penalties when comparing offers. You may also be able to negotiate with your lender to waive or reduce the penalty. It’s always worth asking!
Your credit score
It’s no secret that paying off debt is a good way to improve your credit score. After all, one of the key factors in your score is your debt-to-credit ratio, which is the amount of debt you have compared to the amount of credit available to you.
So, logic would dictate that paying off a loan would lowers your debt-to-credit ratio and, in turn, raise your credit score. However, there’s a potential downside to paying off a car loan early: it could actually lower your credit score.
Here’s how it works: when you make a regular payment on a car loan, the lender reports that activity to the credit bureaus. These payments help to build up your payment history, which is one of the key factors in determining your credit score. If you pay off your loan early, however, there will be fewer payments reported to the credit bureaus, which could drag down your score.
Of course, there are other factors that contribute to your credit score as well, so paying off your car loan early may not have a huge impact. But it’s something to keep in mind if you’re looking to give your credit score a boost.
Now you now how to pay off a car loan early–and some of the pros and cons. By following these steps, you can be on your way to being car-loan free in no time. Do you have any other tips that have helped you pay off a car loan early? Share them with us in the comments!How to Pay Off a Car Loan Faster + The Pros and Cons | #personalfinance Click To Tweet