How To Pay Off Car Loan Faster


The best methods for paying off a car loan include refinancing your loan, making additional payments, and applying windfalls of cash.

Since purchasing a new car is costly, many consumers choose to pay for it over time by taking out a car loan. However, the interest rate on auto loans can go up to double digits based on your credit score. Therefore, the longer you have the loan, the more you have to pay for the car. Thus, many people are interested in finding out how to pay off their auto loans more quickly.

Paying off your auto loan sooner can help you save a sizable sum of money if it’s eating up a large portion of your income and giving you stress. Find out more about the different tactics you can use to pay off your auto loan more quickly.

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With loans available for up to 96 months, the average length of time for a new car loan is just over 68 months, meaning you could be making car payments for eight years. Over the course of the loan, paying it off early can save you money because long-term financing entails higher interest payments.

Even though it could sound like a great idea, first make sure you understand the specifics of your loan and your financial situation.

Should you pay off your car loan faster?

Paying off your auto loan early will typically result in a reduction in the interest amount you pay. First make sure you know your current balance and APR. Next, check the loan terms to see how early payments and overpayment penalties are handled by your lender.

When it makes sense to pay off your loan faster

  • You have extra money: You can apply any additional funds from a windfall, tax refund, or job bonus to the loan. Find out from your lender if you can apply the funds to the principal of your loan.
  • You wish to pay off your debt because doing so can lessen stress and free up funds for other uses. If you’re considering purchasing a home, early car loan payback can benefit you by improving your debt-to-income and credit utilization ratios.
  • You could refinance your auto loan at a lower rate if your interest rate is high, or you could just pay off the loan sooner. You won’t have to pay interest as much that way.

When it doesn’t make sense to pay off your loan faster

  • There is a prepayment penalty assessed by your lender; weigh it against the potential interest savings. It would make sense to adhere to the loan schedule if the interest savings do not exceed the prepayment penalty.
  • Your other debt has higher interest rates: Prioritize paying off your credit card debt, personal loan, or other high-interest debt before concentrating on your auto loan. That way, you’ll save more on interest payments.
  • You are unable to afford it: Make sure you pay your rent, utilities, and other regular debts on time each month. Consider contributing to your emergency savings account before paying off your auto loan if you don’t already have one.
  • Use our

5 ways to pay off a car loan faster

You can save money and have peace of mind by paying off your debt. These are some strategies to pay off your auto loan more quickly so that the amount of interest you pay is lower. You don’t have to do it all at once.

Consider refinancing your current car loan

Refinancing or obtaining a new loan to settle the previous one could be an option if interest rates have decreased or your credit score has improved since you took out the original one. Take into consideration a shorter loan term to lower interest costs, and make sure that any refinancing fees don’t erase your interest savings.

Make biweekly instead of monthly payments

You could add one extra payment to your annual total by adjusting the frequency of your payments. There are 52 weeks in a year, but not four weeks are included in every month. Therefore, you will essentially make one additional payment throughout the course of the year if you pay 20%50% of your car payment every two weeks. An illustration of possible savings using this method on a $25,000 loan at 6% APR with a two-month initial loan term is provided below.

Monthly payments Biweekly payments
Payment amount $414.32 $207.16
Payments in a year 12 26
Annual payment $4,971.84 $5,386.16
Total interest paid $4,831.20 $4,335.54
Interest savings N/A $495.66
Payoff 72 months 65 months

Round up your payments

Each month, round up your payment to the next $50 or $100. You determine the amount, so you can change it according to your monthly cash flow. You can shorten the loan’s term by months if you do it regularly.

In the event that you borrow $25,000 at 6% annual percentage rate for twenty-72 months, your monthly payment will be $414. 32 per month. By adding $50 a month, you can save $633 and shorten the loan term by nine months. 42 in interest.

Find extra money for payments with a budget

When creating a budget to pay off debt, start by figuring out how much less you can spend on non-essentials. Apply any bonuses, tax returns, or cash gifts you receive to the car loan. Paying off the loan sooner will free up the budget for more pleasurable expenses, even though it can be difficult to put off spending money on more enjoyable things.

Invest any raise you receive toward your auto loan rather than letting lifestyle creep eat away at your extra cash. Over time, even modest increases in the monthly payment will have an impact.

You can aim to increase your income in order to reach your objective. If you can, take on additional work, or rent or sell personal belongings.

Review your car add-ons

A portion of your loan payments might be used to cover dealer add-ons and additional fees that were included in your loan agreement. Examine your sales and loan documentation to determine whether you are paying for items such as:

  • Guaranteed asset protection (GAP) coverage
  • Service contract
  • Extended warranty
  • Tire and wheel warranty
  • Exterior and interior protection package

Speak with your lender or dealership to see if you can get any unnecessary add-ons cancelled. For some of the payments you have already made, you might be eligible for a partial refund or credit.

Frequently asked questions

When a car loan has no prepayment penalties, you can pay it off as quickly as you choose. If you’re refinancing, you should wait to proceed with the new loan for 60 to 90 days after the financing and title documents for the previous loan are finalized. Waiting six months to a year for your credit score to recover from the first auto loan could be prudent if you’re refinancing.

Depending on your state, the lender will send a statement of lien release or a new title in the owner’s name after your car is paid off. When a lender holds title in a state until the loan is repaid, the lender will send the title with all liens removed. The lender will give a notice of lien release in the states where you are the title holder, and the owner can get a new title issued as needed. A digital release that is accessible at any time is stored in some states’ electronic lien and title systems.

Pay the principal first whenever you can. The amount of interest you pay each month is determined by the principal you owe. Lowering the principal will result in lower monthly interest payments. For a loan to be applied to the principal with many lenders, interest and other fees must be paid on time.


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.

Can you pay off a 72 month car loan early?

Although there are no legal penalties for paying off your auto loan early, your auto loan provider may charge you for doing so. Early car loan payback can help you save money and lower your debt, but whether it’s a good idea depends on your own financial circumstances.

What happens if I pay my car payment twice a month?

Money can be saved by dividing the payment in half and making two payments per month (semi-monthly). Why? On an auto loan, interest compounds daily. You can actually reduce the principal faster by paying half of your payment early, which lowers the amount of compound interest you will pay over the course of the loan.

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