A car loan can seem like a very long-term prospect. After all, most loans are made for periods that last up to five years. If you want to pay off your car more quickly, though, there are always steps you can take. These steps often involve spending more money than you’d have to when making minimum payments, but they’ll help you to own your car outright on a much faster schedule. Below are just a few of the ways you will be able to pay off your car loan early.
Make Extra Payments
Perhaps the easiest, and most direct, way to pay off your car loan early is to make extra payments. If you can afford to pay two car payments per month, you’ll cut the length of your loan by more than half. If you can’t afford that, you might be able to make a one time payment to decrease the principle amount on your loan. Generally speaking, anything you can do to throw extra money at the loan will help you out financially.
One way to make this sting a bit less financially is to dedicate part of your tax return to paying off your car. Even if you can only throw a few hundred dollars at the loan, you’ll still be reducing the overall length of your debt. Sometimes, even a small gesture can pay off huge dividends.
Split the Payment
This has become an incredibly popular solution with some lenders. Instead of making extra payments every month, you’ll be able to split your existing payment into bi-weekly payments. You’ll end up paying exactly the same amount most months, but you’ll end up making thirteen payments a year instead of twelve due to the months that have five weeks in them.
The bad news about this plan is that it doesn’t really help you reduce your interest payments, nor does it help you save money on your car loan at all. What it will do, though, is cut your total payment period by about six months if you have a standard sixty month loan. It’s a good way to get out of the loan quickly, even if you can’t get out any cheaper.
Of course, one of the things that really holds back most car owners from paying off their vehicles easily is interest. If you bought your car at a high interest rate, there’s a good chance that the majority of your payment is going straight to interest. If you have improved your credit score, though, you may be able to refinance your vehicle. While this is often done to reduce one’s monthly car note, it’s actually incredibly useful for those who want to pay off their vehicles quickly. You can keep your same payment level once you’ve refinanced, but now more of your payment will go towards paying off the principle balance.
Avoid Missing Payments
The easiest way to stretch out the length of your loan is to miss car payments. Skipping payments will cost your more money in interest and fees than it is worth, and will often cause you to pay for your car longer than necessary. There are many loan originators who will “forgive” a missed payment every year, helpfully glossing over the fact that doing this actually lets them net more money. If you want to pay off your car as quickly as possible, you’ll need to pay your bill in a timely manner every month.
Increase Your Payments
Finally, you always have the option of paying more than the minimum monthly payment. While it might not seem financially rewarding to pay more for your car in the short term, it’s good to remember that putting more money towards your car each month does help you knock out the principle balance more quickly. Consider rounding up all your payments to the nearest fifty dollar amount to put your money to work. You’ll end up paying a bit less in interest over the life of your loan and you should wind up paying the loan off a bit earlier by raising your payments.
It’s entirely possible for you to pay off your car loan early and get out of debt, but doing so will often require sacrifice. You must be willing to pay more, to pay more often, and to look into programs that help you get the most out of your loan. While you might have to pay more in the short term, following the tips above will help you not only pay off your car faster but also help you to spend less on the vehicle overall. While you might miss your money now, there are few better feelings that knowing you have paid off your car and are no longer having to deal with that debt.