How to pay off your car loan faster
A car loan provides you with the finance you need to buy a vehicle, but it can take time to pay it off.
If you’ve taken out a car loan, you may want to know if there are any ways you can pay off your loan sooner. Paying it off faster helps you reduce the total interest you end up paying on your loan, saving you money.
Here are some ways you can pay off your car loan faster.
Know how much is left
Sometimes with loans, it can be easy to keep making payments without keeping track of how much you’ve already paid and how much is left to pay off.
If you’re wanting to pay off your car loan early, knowing how much is left can help you determine if it’s within your budget to pay off the loan sooner. It will also help you see whether you’re on track with your current payments.
When you know the amount left on your car loan, it’ll be easier to set yourself a target to work towards if you do want to pay it off before the end of the loan term.
Make additional payments
If you find yourself in a position where you can make extra payments towards your loan, this can help you pay off your car loan faster.
If you come into some extra money, whether your salary has increased or you got a good tax refund, consider putting this money towards your car loan.
Making extra repayments gives you a buffer in case you miss out on any future payments, though try to avoid this when you can and don’t use making extra repayments as an excuse to skip payments, as this will not help you pay off the loan faster.
Extra repayments are one of the easiest ways to pay off your car loan sooner, but check with your lender on how they structure repayments, as some may not allow you to make extra repayments.
Round up your payments
Your lender sets your car loan repayments based on the total loan amount, the interest rate, loan term and the payment frequency, whether weekly, fortnightly, or monthly.
If your repayment amount is set to an uneven number, and most often this will be the case, rounding up the amount helps you pay a little bit extra with each payment.
You can choose to round it up to the nearest 10 or the nearest 100, whatever suits your budget. This allows you to pay extra each month without thinking about it, so you can pay off your car loan sooner.
Increase your payment frequency
Increasing your repayment frequency helps you pay off your car loan faster and shorten the overall length of your loan.
Many borrowers may choose monthly repayments, however, paying fortnightly rather than monthly means that you end up making an additional payment each year. There are 12 months in a year, but if you make fortnightly payments you end up paying extra because there are 26 fortnights in a year.
Check with your lender on how they calculate the car loan repayments, and whether paying at different frequencies would be beneficial, as some may calculate the fortnightly payments slightly differently and you want them to be exactly half of a monthly payment amount for you to make an extra payment.
Check the conditions of your car loan
Before you start trying to pay off your loan sooner, check the terms and conditions of your car loan agreement.
Make sure your car loan allows you to make extra payments or pay off your loan early, as some loans may have fees or charges associated with early or extra payments.
It’s important to know whether you’ll incur any penalties, as this may negate any potential savings you might make. If your car loan doesn’t allow you to make extra repayments, it might be worth considering other options so you can pay off the loan sooner.
Refinance your car loan
If you’re in a position to do so, you may want to consider refinancing your car loan to a shorter loan term. The shorter your loan term, the more you could save in interest.
It’s important to properly research whether this is a good option for you, and be aware that this will involve you paying higher repayments. Make sure it still fits with your budget.
Use a car repayment calculator to work out how much you can afford with a shorter loan term, and what your repayments might look like.
You should also check with your lender before proceeding to make sure there are no penalties with refinancing.
If you’re wanting to pay off your car loan sooner, contact a 360 Finance Specialist for more advice.