6 Simple Tips for Paying Off Your Car Loan Early


Not everyone has the ability to pay cash for a new or pre-owned car. Many people rely on financing and special promotions to fund a new vehicle. If you're nervous about financing and having a car payment every month, you should know that even after you get your loan, you can still be in control of your budget and increase your savings.

If you make the commitment to pay off your car loan earlier than your pre-set schedule, you'll save in interest and be free of debt sooner. After choosing the right vehicle at the dealership, here are some simple tips for paying off your car loan early. 

1. Round Up

This method is one of the simplest ways to increase your monthly payment. Instead of paying the initial dollar and cent value of your minimum payment for the month, round the number up to the nearest 50, or the nearest 100 if you can manage it. So, if your payment is $336 per month, round up to $350 or even $400 if your budget will allow for it.

Make sure when you're adding extra money to your payments that you put the money toward the principal of your loan. This way, you'll save the most money on future interest charges. 

2. Pay More Than Once Per Month

No matter what time of the month your car payment comes out, you can still make additional payments any time. If you can't afford, for example, to round up when your bill is due, consider adding the extra amount two weeks later. 

If you can manage it, you could even make your car payment twice in a single month, essentially paying it down double time but with the entire second payment going toward the principal. You'll essentially halve the time of your loan. 

3. Consider Refinancing

Sometimes, especially for first-time or high-risk buyers, your initial interest rates from third-party lenders are not very low. After making several payments on time, contact your credit union or personal bank and ask about refinancing rates. If you have a history of lending with your bank, or if you enjoy special perks, like military membership, refinancing could save you a few percentage points in interest.

Keep in mind, however, that because cars are depreciating assets, your new lender may ask you for another down payment to make up the difference of the car's value. Most do not like lending much more than the vehicle is currently worth.

Refinancing with a lower interest will reduce your monthly payment. But, if you still pay what you were paying before switching your lending agreement, you will have your car paid off sooner. 

4. Spend Unexpected Income

It may not seem glamorous to use your birthday check from your parents or a bonus from your workplace to pay extra on your car, but it is one of the best ways to invest the money. You'll save more than you spent by reducing your interest. It's the best birthday gift you could give yourself.

Other unexpected cash sources include tax returns, rebates from credit cards, holiday bonus pay, or even increased commission on company sales.

If you're bummed about missing out on what you could buy with your additional money, make a list. After you've paid off your car, use the money you were putting toward your payment to get yourself a reward for being dedicated to the early payoff. 

5. Don't Skip

Many lenders offer a few forgiveness payments for their customers. For example, to give yourself more spending money at Christmas, you might be tempted to defer your loan until January. Every year or so, your lender allows for these skipped payments.

However, the payment is not skipped at all. All that money you would have put toward the principal now remains on the loan for more time, gathering interest. You'll end up paying more in the future, taking longer to pay off your loan. 

Even if you can't afford to add extra to your payment in a lean month, always commit to paying the minimum to save yourself extra months of payments down the road.

6. Sacrifice Just One Splurge Item

Nearly everyone has guilty-pleasure spending in his or her budget. You might always get pizza on Friday nights, buy coffee at the local shop each morning, or have a monthly subscription to the gym. Choose one item to cut and put that spending money into your car payment instead.

Replace the pleasurable thing with a more affordable option, like making your pizza yourself or working out at home using free online videos. Remind yourself that this is temporary. As soon as your car is paid off, you can easily take advantage of these splurge items again. 

 

Just because you need a car payment to finance your new wheels doesn't mean you can't control how quickly you pay the debt and how you choose to spend your money. If you're concerned about going into debt for a car, speak with the agents at Young Automotive Group about your budget and transportation needs. We try to help families find an affordable vehicle for right from the start. 

Categories: Finance

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