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4 min read . Published August 17, 2022
Authored by Kellye Guinan. Written by Personal and Business Finance contributor
Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finances. She also works full-time as a librarian at the local library where she helps people in her community get information on financial literacy, in addition to other subjects.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to control their finances through providing precise, well-researched and well-written facts that break down otherwise complex subjects into digestible pieces.
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As long as that your lender doesn’t charge a prepayment penalty and you can pay it off faster, this is a great option to save money. It will result in less interest — and , when you’re done, you’ll have an extra few hundred dollars left in your budget every month. But getting there may be difficult. There are some strategies you can utilize to pay your loan off quicker. Even if you can, it could make you in a much worse financial position if you aren’t mindful about your approach. Six ways to pay off your car loan quicker There’s no single way to pay back your vehicle loan ahead of schedule. It makes sense to vary your approach. When you’ve got an idea of how, you can benefit from a variety of strategies to get rid of your car loan quicker. 1. Refinance with a new lender could be a simple way to pay off your loan quicker. If you opt for a shorter loan term, you may be able to keep the same monthly payment given that you get a lower interest rate. If you don’t pay extra or round up your payments to make them more frequent, you’ll be able to pay off the car loan quicker. 2. Pay biweekly, even though it might not seem like much but paying twice per month rather than just once will get you to the finish line faster. This will also reduce the cost of . The reason is that interest will take less time to accumulate before making payments — and also because you’ll be able to consistently reduce your overall loan balance. It will help you get closer to an earlier payoff date, without significantly increasing the amount you put toward your loan every month. 3. Round your payments up to the nearest hundred . Similarly in rounding up your monthly payments, it can have a slight impact on the month-to-month basis, but it will make a huge difference in the overall. By rounding to the nearest hundred or, at a minimum, the closest total number, you can gradually reduce the amount of principal on your vehicle loan. You will also get ahead of your schedule and stay ahead of the interest rate and ease you into a faster payoff. 4. Opt out of unnecessary add-ons If you like gap insurance or an extended warranty, or a service contract for your loan Contact your lender and ask them to cancel them. You’ll get a prorated refund of the remainder while also lowering the amount you pay each month. However, instead of putting that money in your account use it towards your loan. This way, you’ll owe less overall and benefit from the benefit of a lump-sum payment. 5. You can make a significant additional payment Tax returns, bonuses and other huge lumps of cash could be used to pay for your car loan. If you can cut the amount of your principal by a couple of thousand dollars is likely worth it. Like rounding your payments and making biweekly payments, it will prevent interest from accumulating. When your loan balance decreases, more of your payment will go toward principal, leading to an early payoff. 6. Pay each month Even when you’re ahead of your schedule however, you should still make payments on your loan each month. This will stop interest from rising which means that more money goes towards principal which will reduce the interest you pay. Making regular payments even in the absence of a need can result in paying off your car loan in a timely manner. If you don’t want to pay off your car loan in time. The ability to pay off your car loan early can mean a couple hundred dollars in your bank every month. But in some cases, you could negatively impact your financial situation more than it helps and so not be the most beneficial option. Beware of paying your loan off in a hurry if: There is a penalty for prepayment. A essentially punishes you for making extra payments or for paying off your loan in advance. The lender is trying to make up any interest charges you might have paid when you had adhered to the schedule. If there’s a prior payment penalty, make sure it’s not more than you’d be paying in interest. Your loan makes use of pre-calculated interest . front-loads the interest you pay each year so you pay for the month that counts for a greater share than the last month. If you’re able to pay off your loan early, you aren’t going to drastically reduce price of the vehicle loan. In this situation it’s best to stick to the loan timetable. There isn’t a lot of debt. Although it might seem odd, your credit score is calculated based on the type of debt you’ve accumulated and the duration of your accounts. Since auto loans are long-term debts paying on a regular basis for years can help maintain your credit score. One caveat: paying off your loan can lower your credit utilization ratio which is approximately 30 % of the credit scores. If you have debts that aren’t paid off and high percentage of your income to debt (DTI) and you want to get rid of one debt will help boost your score. Methods to reduce your monthly car payments Aside from refinancing your loan There are two options to reduce your monthly payment by deferring them or requesting an loan modification. Deferment allows you to skip the payment if you’re having financial issues that are short-term. Loan providers may give you up to three months of deferment in order to help you get through the. But deferment only moves the payments to the end of your loan and you’ll still have to cover them in the future. Additionally, you will be accountable for interest costs, which means that at the end it’s more costly. Some lenders might not be able to alter the terms of your loan, but it doesn’t harm to inquire. Similar to refinancing, it can change the conditions of your loan through either extending your time period or decreasing your interest rate. If you are able to get a modification to your loan and reduce your monthly payments without having to apply with another lender. What next? It might not necessarily be the best option to make the payment on your car loan in advance. If you’d face prepayment penalties or a risk of a impact on your credit score, the savings aren’t enough to justify the expense. If you’re looking to eliminate financial burden, reducing your car payment is one of the quickest ways to make room in your budget. Refinancing — or just making extra payments — are the best way to pay off your car loan quicker. Even if it’s only one extra dollar a month, you will reduce your debt and may take a few months off of your loan. Learn more
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Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finance. She also works full-time as a employee at the library in her town which she assists her local community to access information about financial literacy, among other topics.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to control their finances by providing clear, well-researched data that breaks otherwise complicated subjects into digestible pieces.
Auto loans editor
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