How To Pay Off Your Car Loan Faster: 5 Ways
You have a few options if you’ve determined that it makes sense to pay off your debt early. Your optimal choice, however, will rely on your particular financial circumstances and spending patterns. The strategies listed below can help you pay off your auto loan more quickly:
- Refinance your car loan
- Split Your Bill Into Two Biweekly Payments
- Make a large down payment
- Round up your car payments
- Review additional car expenses
#1 Refinance Your Car Loan
You can obtain a new interest rate and loan term when you refinance your auto loan. You might be able to obtain a refinancing loan with a shorter term and a lower interest rate if you can afford to make larger payments.
But a refinance loan is essentially the same as a new auto loan for a car that you already own. It might have the same fees and extra charges as other loans, so be sure to account for these in your calculations.
Source: Capital One
#2 Split Your Bill Into Two Biweekly Payments
Paying off half of your auto loan every two weeks may appear to be a net neutral strategy at first. But rather than receiving 12 payments over the course of a year, this will result in 26 payments. That means you’ll make an additional month’s payment each year.
#3 Make a Large Down Payment
A sizable lump-sum down payment on your auto loan can help you pay it off sooner if you receive extra money from a job bonus, tax return, or another source of income. This is particularly true if your lender applies extra payments to the principal in addition to the minimum amount owed. Additionally, this will lower the interest rate that you pay moving forward.
#4 Round Up Your Car Payments
Any extra money you put toward your auto loan will enable you to pay it off sooner. It can help a lot if you just round your payment up to the next $50 or $100. For instance, if your car loan payment is $365 per month and you pay $400 each month, after a year you will have contributed $420 more to your loan—more than one month’s payment.
#5 Review Additional Car Expenses
You might be using your auto loan to pay for unnecessary expenses. Dealerships usually include auto warranties and gap insurance in purchase loans. If you terminate this coverage, you may be eligible for a partial refund, which will reduce your monthly payment. You can pay off your auto loan more quickly if you keep up your current payment schedule.
Should You Pay Off Your Car Loan Faster?
Determining whether it’s a good idea to pay off your car loan early is the first step in the process. Eliminating your auto payment may seem like a big benefit, but it’s not always the best financial move.
When You Should Consider Paying Off Your Car Loan Early
There are numerous circumstances where it makes sense to pay off your auto loan sooner than the terms of your contract stipulate. Here are some of the most common:
- You received a pay increase, tax refund, or other windfall: If you have received any of these things recently, you might be able to afford to make larger payments.
- You desire to be debt-free: Debt becomes an asset when your auto loan is paid off. This could free you from a monthly obligation and raise your credit score.
- Your interest rate is high: When you purchased your car, you might have been forced to accept a high-interest loan. Early loan payback can significantly lower the total amount of interest you pay back over the course of the loan, particularly if your interest rate is high.
- You wish to save money: Early repayment of your vehicle loan lowers the interest you pay. The savings can add up, depending on how quickly you pay off your loan.
- You have a variable-rate auto loan; since interest rates are rising, it could be wise to pay it off sooner rather than later to avoid incurring a higher rate.
When You May Not Want To Pay Off Your Car Loan Early
Repaying your auto loan faster isn’t always the wisest choice. In the following circumstances, it might not be wise to pay off your auto loan more quickly:
- Prepayment penalties on your auto loan: Some loans have penalties for early repayment. In this instance, making an early repayment may not result in financial savings.
- You really can’t afford it: Although it might seem prudent to stretch to make additional car loan payments, doing so could put you in danger of having to take out a loan, which would negatively impact your finances.
- Your other debts have higher interest rates: Generally speaking, auto loans have lower interest rates than credit cards, personal loans, student loans, and other financing options. It usually makes more sense to pay off loan debts with higher interest rates as soon as possible.
How To Pay off Car Loan Faster Calculator
Consider whether you would truly benefit from paying off your car loan early before attempting to do so. The extra savings might not justify the changes to your budget that would be required.
Using a car loan calculator is one of the simplest ways to determine how much you can save. With the help of these tools, you can enter various scenarios and observe how they would impact your loan, such as increasing monthly payments. Even if you were to refinance your auto loan at a different interest rate, you could see what your payments would be.
Purchase Loan Calculator Price of the car you want $ Down payment $
* This website only provides the calculators for educational purposes. Data will not be collected or stored. The results are approximations derived from the data you submit and might not accurately represent the cost of your quote.
How To Pay Off an Auto Loan Faster: The Bottom Line
Stopping auto payments can be a financially game-changing decision for a lot of people. You have numerous options at your disposal for accelerating the repayment of your auto loan. Regardless of the approach you take, make sure you are in a position to profit from early repayment of the remaining balance on your auto loan.
Should You Pay Off Your Car Loan Faster: Checklist
We’ve developed a checklist to assist you in determining whether it makes sense to pay off your auto loan early. It’s worthwhile to investigate ways to pay off your auto loan more quickly if you can check off most or all of the following:
- Early loan repayment can save you a substantial sum of money.
- You can stop making loan payments and work toward other financial objectives.
- You can afford to pay more frequently or all at once.
- Your loan doesn’t have a prepayment penalty.
- You don’t have other debts with higher interest rates.
- You can refinance your loan without too much additional cost.
Our Recommendations for Refinance Auto Loans
If you can get reasonable rates from a reliable lender, refinancing your auto loan could be a great way for you to pay it off sooner. You can compare quotes from different providers and determine which one provides the best refinancing rates by sourcing quotes from them. From our list of the top auto refinance companies, we advise you to begin your search with one of the following companies.
Auto Approve: Top Choice for Refinancing
Auto Approve was recognized as the Best Option for Refinancing in our evaluation of the top auto loan companies. Auto Approve, a refinance-only lender, offers competitive rates to borrowers who wish to take out new loans in order to pay off their existing auto loans more quickly. Additionally, the company doesn’t impose prepayment penalties and offers a very simple online application process.
MyAutoloan: Best Low-rate Option
It’s worthwhile to check out myAutoloan’s marketplace model if you’re looking for refinance loans. The website enables borrowers to submit their information and lenders will contact them, saving them the trouble of searching for lenders themselves. This makes comparing offers simple and efficient.
Furthermore, borrowers with credit scores as low as 575 are eligible for myAutoloan. That implies that refinancing auto loans may also be available to those with less than ideal credit histories.
How To Pay off a Car Loan Faster: FAQ
The following are some commonly asked questions regarding quickly repaying an auto loan:
There are a few different ways to pay off a car loan early; the best strategy will depend on your particular circumstances. Increasing your monthly payment, refinancing your loan to a shorter term or lower interest rate, and making large lump sum payments when you can are some of the most popular strategies.
No, in most cases, paying more won’t result in a lower car payment. Generally, you will continue to make the same amount for your car payment, and the extra payment will be applied to the balance of your loan. This may enable you to pay off your auto loan more quickly, depending on how much more you choose to pay.
You can pay off your car loan sooner if you pay half of it twice a month rather than the whole amount each time. This is due to the fact that when you pay every two weeks, you actually make 26 payments, which add up to 13 monthly payments rather than 12.
Depending on your lender and loan terms, any additional money you pay toward a car loan may or may not go toward principal. While some lenders may only apply an additional payment toward interest, others may automatically credit additional payments toward your principal. Your lending agreement should specify which. Furthermore, it could be a good idea to explicitly specify in writing that any additional funds are to be applied to the principal only.
Since customers depend on us to deliver unbiased and precise information, we developed an extensive scoring system to develop our rankings of the top auto loan providers. In order to rank the loan providers according to a variety of criteria, we gathered information on dozens of them. Each provider received an overall rating at the end, and the top of the list went to the businesses that received the highest points.
Here are the factors our ratings take into account:
- Reputation%20(25% of total score): When determining this score, our research team took into account ratings from industry experts and each lender’s years in business.
- Rates (25 percent of the total score): auto lenders with low annual percentage rates (APRs) and high loan amounts that scored highest in this category
- Availability (25% of the total score): Businesses that handle a range of situations are more likely to satisfy customer needs.
- Customer Experience (25% of the total score): This score is determined by customer satisfaction ratings and transparency. We also took into account how helpful and responsive each lender’s customer service representatives were.
Daniel is a team writer for MarketWatch Guides and has contributed to multiple automotive news websites and marketing companies in the United S. , U. K. , and Australia, with a focus on auto finance and maintenance subjects Daniel is an expert on auto insurance, loans, warranty options, auto services, and more for MarketWatch Guides.
Rashawn Mitchner has been writing about personal finance and insurance for MarketWatch Guides for over ten years.
FAQ
What happens if I pay an extra $100 a month on my car loan?
If you pay more, your car payment won’t decrease but the loan will be paid off sooner. Depending on how quickly you pay off the loan and how high your interest rate is, making additional payments may also help you save money on interest.
What is the monthly payment on a 15000 car loan?
On average, they get an APR of 2. 89%, which mandates that they make the following monthly payments on a $15,000 loan: 2012 months $1269. 25.
Read More :
https://happymoney.com/articles/6-ways-to-pay-off-your-car-loan-early
https://www.marketwatch.com/guides/car-loans/how-to-pay-off-your-car-loan-faster/