4 Tips to Quickly Paying Off Auto Loans

by Jessica Sommerfield · 0 comments

Most people would agree that having a car loan is often a necessary evil. But you don’t have to resign yourself to always having a car loan. It’s in your best interest to pay off your auto loan as quickly and efficiently as possible, for a few reasons:Reap

  • Lenders usually charge hefty interest on car loans, unless you have good credit.  This is waste of your money. 
  • Owning a car loan immediately lowers your credit score.
  • A car payment eats up a large chunk of your monthly budget.
  • Cars are not long-term investments and do not hold or increase value as in real estate.

With these reasons in mind, here are several tips you can utilize in the goal of paying off your auto loan early.

Negotiate the best term and interest rate possible.
Even if you’re already tied into a car loan, there is always room to negotiate, especially if you’ve maintained a good repayment history. Talk to your lender to see if you have become eligible for a lower interest rate. If they won’t work with you, shop around with other lenders to get the best quote and approach your lender again. Chances are they will work with you in order to keep your business.

Longer repayment terms mean smaller payments but more interest paid overall. Conversely, shortening your loan repayment term will increase your monthly payment but decrease your overall interest paid for the duration of the loan. Paying less now may make your budgeting easier, but you’re back to paying more for a vehicle that continues to depreciate.

Choose bi-weekly payments and electronic billing.
Many lenders offer a bi-weekly payment option that splits your car loan into two equal payments twice a month (usually the same schedule as your paychecks).  This will ultimately allow you to make an extra payment (or two) a year without feeling the impact. While your setting up your loan, opt for online billing or automatic withdrawal to streamline the process and reduce the risk of missing a payment. Lenders prefer this because it cuts their processing costs, and may offer you a small discount for choosing this method.

Round up your payments and make extra payments.
This is what really makes the difference in repaying your loan faster. If you issue your payments, round up the amount of your monthly payment to the nearest whole dollar amount, and even better, the nearest hundred dollar amount. An extra  $30-$50 a month can add up to a few extra car payments and take months (and hundreds of dollars in interest) off your loan. Again, you probably won’t miss this amount, and you’ll be making a significant impact on lowering your debt.

Extra payments are the best way to pay off your auto loan early. Just make sure your lender doesn’t penalize you for making extra payments, paying off your loan early, or charge interest on every payment you make (instead of a set monthly interest amount).  If they do, you’re better off just increasing the amount of your monthly payment.

Find extra money wherever you can.
This is where it gets fun. If repaying off your auto loan is your priority, think about ways you can cut your spending so as to apply extra payments to your loan.  Look at your luxury spending first — eating out, shopping, entertainment, services. Consider limiting or suspending some of them temporarily as you focus on repaying your loan. The faster you get it paid off, the faster you can enjoy those little luxuries again (and probably have more cash to spend).

Repaying your auto loan faster than its term has many advantages. You’ll have more money to budget for savings, repaying other debt, or special projects, a boost to your credit score, and better insurance rates, not to mention more peace of mind.

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