If you’ve bought a car, chances are you’re one of the 100 million Americans who opted for an auto loan. While car loans can be helpful if you’re buying a car but don’t have the cash to pay for it upfront, that doesn’t mean they’re budget-friendly.
In fact, the interest rates can be so high that it takes years for someone to pay off their loan. So, we’re going to show you how to save money on those pesky interest payments. Read on for our top tips on how to pay off a car loan faster.
How to Pay off a Car Loan Faster?
Maybe you want to pay off your car loan early so you can free up some extra cash each month, or maybe you’ve come into some money and want to pay it off as soon as possible. Whatever your reason, there are a few things you can do to make paying off your car loan easier.
Make Biweekly Payments
It’s simple. You just make one extra payment each month. It adds up over time, and you’ll pay off your car loan faster than if you only made monthly payments.
It’s also important to note that making biweekly payments doesn’t change the total amount of principal and interest you owe on your loan; it just increases the number of payments.
Round up Your Car Loan Payments
If you cannot afford the biweekly payment, then round up your monthly payments instead. For example, if your car loan payment is $375 a month, then round up to an even $400. This may not seem like much, but over the course of a loan, it can add up and help you pay off your car loan faster.
Refinance Your Loan
If you have good credit, refinancing your car loan can be a great way to save money and pay off a car loan faster. When you refinance, you replace your old loan with a new one at a lower interest rate. This allows you to reduce the amount of interest that accrues on your loan over time and frees up more cash each month.
Another way you can refinance is by extending the repayment period on your car loan, which will make it easier for you to get out from under its burden sooner than expected.
Use a Personal Loan to Get a Lower Interest Rate
Personal loans are another type of finance that allows you to borrow money without having to sell anything or put up collateral. Personal loans can come with fixed or variable rates, but they may have higher rates compared to car loans because they aren’t secured by an asset (like a car). The amount borrowed and the repayment term will determine how much interest you’ll pay overall.
Still, paying off a car loan with the money you receive from a personal loan is cheaper than settling your debt with credit cards.
You can apply for a personal loan at most traditional banks or credit unions. Keep in mind that any money you borrow will be reflected in your credit report, which could lead to a slight drop in your score.
Trade-In Your Vehicle
To determine how much your car is worth, check out Kelley Blue Book’s website and search for comparable vehicles. Your local dealership may also have its own independent values. A good place to start is by using both sources and comparing the results, then adding on any improvements or repairs that you’ve made.
You can also ask friends who have recently sold their vehicles how much they received. Once you figure out an estimated price range for your vehicle (preferably within 10% of its true market value), set aside some time to call around until you find someone who will pay within this range—or better yet, go above it!
Never Skip Payments
Skipping a car payment may seem like an easy way to free up some extra cash, but it will end up extending your loan term. You may also be charged late fees and interest.
Depending on the lender’s policy, they could also report the missed payment to the credit bureaus—which would then lower your credit score. A lower credit score means higher interest rates when you borrow money in the future, so missing even one car payment can end up being quite costly.
Can You Pay off a Car Loan Early?
You can pay off your loan early, but that doesn’t mean you should. Although you may save on interest, your lender could charge you a prepayment penalty. It’s a good idea to check with your lender before making extra payments or paying off your loan early.
Prepayment penalties start out at around 2%, but there is no cap on what lenders can ask. Many lenders will waive prepayment penalties if you’re refinancing or selling your car, but this isn’t always the case.
Reasons to Pay Off Your Auto Loan Early
If you have a large amount of extra cash on hand, paying off your auto loan may make sense. The chief advantage of paying off your car loan early is that you can put the money toward other things, like investing, saving for retirement, or purchasing a home. You’ll also find debt-free living much less stressful.
Get Affordable Financing for Your Next Vehicle
We hope you’ve gotten some clarity on how to pay off a car loan faster. It may be time to tell your current car loan goodbye and enjoy the freedom of being debt-free sooner.
If you still want the help of financing, consider getting a car loan from a reliable online lender like us here at CarsFast. You can get affordable rates and flexible terms, regardless of your credit score. Apply for pre-approval in minutes, and start shopping for your next car with confidence.