Imagine finding your dream car but not having the credit score you need to get a loan. You decide to apply for a bad credit car loan, but now you need to figure out how to pay that balance back.
You can do a lot of things, which means there’s a strategy for everyone. Read on to learn some tips to help pay back your auto loan.
1. Implement Automatic Payments
One of the best things you can do to pay back your bad credit car loan is to set up automatic payments. If you have yet to choose a loan, consider lenders that allow this.
That way, you won’t have to think about remembering to make your payments each month. You won’t have to forget a payment and end up with a late fee that will cost you even more.
Some lenders will let you connect your bank account to their online payment portals. If you can’t do that, you should be able to set up a recurring bill payment using your online banking account.
Either way, you just have to make sure the money is in your account by the payment date so that you don’t overdraw your balance.
2. Put Unexpected Cash Toward the Loan
Another thing you can do is make an extra payment whenever you get cash you weren’t expecting. When you have bad credit, you may have a history of splurging on things you don’t need.
Instead, put the cash you receive as a gift or a bonus from work toward your auto loan. That way, you can pay off the loan sooner than you originally planned.
However, you don’t have to adjust your budget or other spending at all to do that. Even if you use automatic payments, you should be able to make a one-time manual payment when you get extra money.
3. Reduce Other Expenses
Another way to pay off car loans even with bad credit is to adjust your budget. Find ways to reduce expenses in other areas, such as by not eating out as often as you’re used to.
Or maybe your apartment lease is ending, so you decide to look for a cheaper place to live. As you reduce other expenses, take the money you save and put it toward your loan repayment fund.
If the increase in savings is consistent, you can even up the amount of money you pay regularly. That can help you pay back the loan in less time, so you could save on the amount you’ll owe in interest.
4. Get Rid of Other Debt
Maybe you can’t reduce expenses, but you might have other forms of debt. If so, look at all of your loans and consider the one with the highest interest rate or the lowest monthly payment.
You can start with either loan and work to pay it off quickly. Paying off the loan with the highest interest rate first is the avalanche method, while tackling the smallest monthly payment is the snowball method.
After you pay off a loan, take the money you were using each month for that loan one put it toward your car loan. You can keep doing this with other debt you have.
That way, you can eventually become debt free, and you can work on other financial goals.
5. Round Up Your Payments
If you don’t have a ton of extra cash to put toward your bad credit car loan payments, do what you can. Maybe your car loan is $475, so you add an extra $25 per month to make it a flat $500.
It may sound small, but that $25 per month adds up to $300 per year. Over time, it could help reduce the amount you’ll owe in interest, and you might even be able to pay off the loan faster.
You can round up to the nearest $50 or $100 based on the current loan payment and how much money you have. Do what works for you, but make sure to add that extra cash to your payments every month to see more benefits.
6. Pay Every Other Week
Another way to pay back your bad credit car loans is to pay the loan every other week. Instead of paying the full monthly amount once per month, pay half every two weeks.
For one, this will make your payments smaller, so it can seem easier to set the money aside. However, it can also help you pay an extra month’s worth of payments per year.
A monthly payment will result in 12 payments over a year. However, a biweekly payment will lead to 26 payments, so if you pay half each time, that equals out to 13 monthly payments.
7. Don’t Skip Payments
Some lenders may allow you to skip a payment occasionally, but don’t give in. Do your best to keep making payments regularly and on time so that you don’t let interest add up.
If you’re short on money one month, at least try to make a partial payment. Any money you can put toward the loan will help you pay it back in less time.
Now, if you can’t use automatic payments, you can set a reminder on your phone every month. When the reminder goes off, you can log into your loan account and make a manual payment.
8. Refinance Your Loan
Unfortunately, many bad credit car loans come with higher-than-average interest rates. As you make regular payments, consider refinancing the loan to negotiate a better rate.
You might be able to lower the interest rate or the monthly payment to better meet your needs. Now, this isn’t always the best choice, especially if you still have bad credit.
However, maybe you’ve been working on your credit as you’ve paid back your car loan. In that case, you can show the lender your improvements, and they might be willing to work with you.
Pay Back Your Bad Credit Car Loan Today
Paying back a bad credit car loan may sound like an insurmountable task. However, paying off the loan can give you more freedom to pursue other money goals.
Be sure to set up automatic payments if you can, and consider rounding up your payment. You can also put cash gifts and bonuses to the loan to pay it off sooner.
Before you can pay it off, you need a bad credit car loan. Apply for a loan today.