Owning a car is necessary for many of us, but paying off the car loan can burden our finances. With car loans typically spanning several years, the interest payments can increase over time. Fortunately, there are several strategies on how to pay off car loan faster and save money in the long run. In this article, we’ll cover five of the most effective strategies.
Make Extra Payments
Making extra payments is a powerful strategy to pay off your car loan faster. By making more than the minimum monthly payment, you’ll reduce the principal balance of the loan and reduce the amount of interest you’ll pay over time. Of course, making extra payments doesn’t have to be a huge commitment.
One way to make extra payments is to make a lump-sum payment. This can be done with any unexpected money you receive, such as a bonus or tax refund. Applying the extra funds directly to the loan’s principal balance will reduce the interest you’ll pay over time and accelerate the payoff date of your car loan. Lantern by SoFi professionals explain, “Depending on your budget, you could increase monthly payments to the next $50 or $100 mark.”
Refinance Your Car Loan
Refinancing your car loan can be wise if you have good credit. By refinancing your car loan for a lower interest rate, you’ll pay less in interest over the life of the loan and potentially reduce your monthly payment. This can free up your budget to pay off the loan faster.
When refinancing your car loan, shop and compare rates from different lenders. Also, consider the length of the loan and the total cost of the loan when comparing offers. Refinancing can be a powerful tool to pay off your car loan faster, but consider the terms and conditions of any loan offer before accepting it.
Increase Your Monthly Payments
Another way to pay off your car loan faster is to increase your monthly payments. Increasing your monthly payment will pay off the loan faster and reduce the interest you’ll pay over time. Even a small increase in your monthly payment can make a big difference in the long run.
When considering increasing your monthly payment, factor in any potential prepayment penalties. For example, some lenders charge a fee for paying off a loan early, so be sure to check with your lender before making additional payments.
Make Bi-Weekly Payments
Instead of making monthly payments, consider making bi-weekly payments. Doing so means you’ll make 26 half-payments each year, equivalent to 13 full payments. In addition, making bi-weekly payments can help you pay off your car loan faster and reduce the total amount of interest you pay.
Use Windfalls to Make Extra Payments
If you receive a windfall, such as a tax refund or bonus, consider using it to make extra payments on your car loan. Using unexpected money to pay off debt can help you reach your financial goals faster. Be sure to check with your lender to ensure that there are no prepayment penalties before making extra payments.
Paying off your car loan faster can save you money in the long run. By making extra payments, refinancing your loan, increasing your monthly payments and bi-weekly payments, and using windfalls to make extra payments, you can pay off your car loan faster and reduce the total interest you pay. With these strategies, you’ll be on your way to financial freedom.
Remember, paying off your car loan faster requires discipline and commitment. So make a plan and stick to it. By doing so, you’ll be able to pay off your car loan faster and save money.
