When determining the overall cost of owning your vehicle, you’ll need to consider the car loan payment you have in place, as well as the interest rate. Although many vehicles have been paid in full, around 35% of American adults were paying back an auto loan in 2019, with the total debt coming to an eye-watering $1.3 trillion.
As car lenders continue to make eligibility criteria easier to meet, the loan terms are also increasing with some stretching as long as 96 months. No one wants to lose a chunk of every paycheck for 8 years, so what can you do to pay off your car loan early and get extra money put back into your pockets?
We’ve got all the advice you need to learn how to pay off your car loan faster. Just follow our tips and tricks, and you can say goodbye to those pesky repayments.
8 Ways to Pay Off Your Car Loan Faster
Paying down the loan balance for any vehicle can help you gain peace of mind, as well as put money back in your pockets over time. What used to go towards your car loan can now go towards credit cards that need to be paid down or towards routine maintenance to keep you on the road longer.
Here are 8 tips you can implement today to help you pay less in interest and pay off your car loan.
1. Switch to Bi-Weekly Payments
Bi-weekly payments help lower the amount of interest you pay over time, especially if you’ve recently purchased a new car and are looking to improve your credit score. In general, making extra payments helps bring down the remaining balance to any loan so if you can, then it’s best to set up a budget to see where you can save on expenses while adding more towards your monthly car payment.
Also, check the terms and conditions of your agreement to ensure there are no prepayment penalties and there’s an option to make additional payments. While making additional payments may seem costlier now, you’ll end up paying less interest in the long run.
2. Round-Up Your Payments
An easy way to get rid of your loan faster is by rounding up your repayments to the nearest $50. Say you took out a $15,000 loan with a 4.6% APR over 60 months. Your monthly repayments would be $279.03 per month, costing you a total of $1,741.82 in interest.
By increasing this to $300 per month, you’d pay off your loan in 56 months instead—almost half a year faster. Plus, you’d have saved around $145.08 in interest. This could go towards credit card debt or towards paying off the cost of an extended warranty.
3. Try Snowballing Payments
The snowball effect is a repayment strategy where you direct as much money as you can at either your smallest debt or highest-interest debt until it’s paid off. When you’re all done with that one, you move on to the next until you are debt-free.
This method can be effective, as rather than spreading your income across several debts and paying more interest for longer, you quickly plug the holes in your finances. The key to getting this right is to stay disciplined with repayments and not take out any more loans while others are outstanding.
4. Make at Least One Large Payment Over the Term
If you’re struggling with any of the above, one large lump sum payment a year will still positively affect your term time and your interest owed. The sooner you can make that big deposit land, the sooner that sweet debt freedom will be in reach.
5. Refinance Your Loan
Just like you can negotiate a better car price, you can negotiate better terms and a lower interest rate on your loan. Speak to your loan provider and see if you can arrange a lower monthly payment or a shorter term. Even better, try to ask for both. However, don’t bother refinancing if you’re only given the option to lower your monthly repayments and increase your term. This will just mean more time spent in debt and more money wasted on interest.
6. Never Skip a Payment
Some auto loan providers give you the option to skip a payment or two each year, but don’t be tempted. Interest still accumulates during this time, so all you’re doing adds time to your term and increases the amount you owe to the lender.
By never skipping a loan payment, you avoid additional interest and late fees. This can be applied to student loans or any loan amount you currently have.
7. Reduce Extra Expenses Where You Can
Saying you should try to increase your payments’ size is all well and good, but where’s that money supposed to come from? You could get a second job, maybe even try using your car to make some extra cash, but it’s much easier to work with what you’ve got.
When owning a vehicle, you’re required to cover the cost to properly maintain it and insurance. With EnduranceAdvantage™, you can put money back in your pocket and save up to $3,500 in routine maintenance. As one of the most comprehensive plans on the market, you can save on oil changes, tire rotations, a battery replacement, and more.
Request a free, no-obligation quote today to learn more about our newest protection plan.
8. Take Out an Extended Warranty on Your Vehicle
A great way to cut back on spending is to invest in an extended car warranty. By taking out a policy with Endurance, you’ll be covered against sudden breakdowns. The only time you have to spend money on your car is when you’re filling up on fuel or paying for your deductible.
With the average American spending $1,986 on car repairs between 2014 and 2019, just think how much sooner you could forget about your loan if that money went into repayments instead.
Saving You Money, More Ways Than One
Extended car warranties are designed to save you money, but when you use those savings to bump up your loan repayments, you pay it off much sooner and save on interest too. Best of all, every Endurance protection plan includes 24/7 roadside assistance, rental car reimbursement, and trip-interruption costs as standard. So even if the worst happens, you never have to worry about your wallet.
For maximum savings, EnduranceAdvantage™ is the perfect package, and taking your vehicle in for maintenance couldn’t be simpler. All you have to do is visit your local ASE-certified mechanic, show proof of your Endurance membership, and we’ll reimburse them for the work. It doesn’t cost you a dime.
Request a free, no-obligation quote in minutes, or head over to our Learning Center for lots of helpful advice and tips.