▷ 9 Ways to Pay Off Your Car Loan Faster
Ways to Pay Off Your Car Loan Faster. When you walk out of the dealership with your shiny new car, you probably don't mind paying off your auto loan for at least a few years at the time. After all, financing a new car is the norm, and many people living in the United States (US) and Puerto Rico (PR) see monthly car payments as just another expense they must carry with them for a great trip.
▷ How can I pay my car loan faster?
However, these fees can be very expensive. According to Lending Tree's credit marketplace, the average car payment is about $563 for a new car, $397 for a used car, and $450 for a leased vehicle. The average loan terms are: 70 months for new cars, 65 months for used cars, and 37 months for leased cars.
But just because your loan term is four or five years old doesn't mean you can't pay off your vehicle sooner. With a repayment strategy and some discipline, you can pay off your auto loan faster, save on interest, and free up money to save or pay off other debts.
1. Find out if there is an advance penalty
Before attacking your auto loan with additional or larger payments, check with the bank that funds your loan. When you contact the lender, ask if the bank will charge you a prepayment penalty if you pay off the vehicle before the loan term ends. You can also check for prepayment penalties on your "Truth in Lending" document and loan agreement.
It's a good idea to find out if there are prepayment penalties before signing vehicle loan documents. If a potential lender doesn't agree with the terms of the prepayment penalty, you can keep looking until you find a lender that doesn't charge a prepayment penalty for your car.
2. Pay twice a month
If you halve your monthly fee and make payments every two weeks, you'll add an additional payment, 13 payments over a 12-month period. This method can help you save on interest because you can pay off your balance faster.
3. Make larger payments
Just because your car payment is $400 a month doesn't mean you can't afford it. To pay off your loan faster, increase the amount due and make sure the extra amount is used on principal rather than interest.
Need a little motivation to make bigger monthly payments? Enter your loan amount and terms into the online auto loan prepayment calculator to see how much you can save in interest and the additional monthly payments required to pay off your loan by a specific date.
4. Refinance for a lower interest rate
If your credit rating, income, and/or other financial situation have improved after getting a car loan, consider refinancing at a lower rate. At the same time, try to shorten the loan term so you can pay off the loan faster, especially if you plan to make additional monthly payments on the principal.
5. Apply for tax refund and bonus
It can be tempting to spend a lot of tax refunds or job bonuses on vacations, new electronics, or other fun stuff. But when you claim hundreds (or, if you're lucky, thousands of dollars) in tax refunds or job bonuses against the loan principal, you can significantly reduce your auto loan balance.
6. Save more money
If you can put off buying a new car until you have at least a few thousand dollars down payment, your car loan will be reduced. With a smaller loan amount, you can pay off the car sooner than if you paid the full purchase price.
7. Earn extra income by working part-time
Do you want to pay off your car loan as soon as possible? Take a second job or work as a pet sitter, gardener or other service provider to earn extra income. Then pay off any excess earnings to repay the principal of the car loan.
Sure you'll be working hard for a while, but think about how wonderful your life will be when you pay off your car. Oh, and the money you can save with your monthly car payment, take a vacation in your beautiful (and still very new) car, truck, or SUV.
8. Pay twice a month
You can pay off your car loan faster if you pay twice a month. Paying half the fee twice a month will use up your principal faster to avoid incurring interest. If your monthly payment is $400, you can pay $200 a month instead.
Better yet, pay every two weeks instead of twice a month. This adds two additional payments per year (26 payments every two weeks instead of 24 payments twice a month). However, when you reduce the principal owed by making more frequent payments, you reduce your ability to pay interest to save money overall.
9. Make additional payments on capital
It's akin to rounding up your monthly payments, paying twice a month instead of monthly, or biweekly instead of twice a month. Because interest is a function of the amount you owe on your auto loan, every dollar of principal reduces the interest you owe.
To see if this works for you, call your lender to see if there are any prepayment penalties or additional principal payments. If your lender only allows principal payments, you can get out of auto debt quickly. Make additional payments as soon as possible and as much as possible to reduce the remaining amount you owe. As long as you do this, you'll save on interest on each payment. They also shorten the term of your loan.
I hope that this information has been of great help and satisfaction to you, so continue reading more articles published on this website so that you continue to learn much more about the different loan that you can see.
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