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4 min read Published 17 August 2022
Writer: Kellye Guinan. Written by Personal and Business Finance contributor
Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal finance. She’s also a full-time worker at her local library, where she assists people in her community get information on financial literacy, as well as 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 passionate about helping readers gain confidence to take control of their finances with clear, well-researched data that break otherwise complicated topics into bite-sized pieces.
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If that your lender doesn’t have a penalty for prepayment and you pay off your loan faster, it is a fantastic way to save money. This means you pay less interest — and , when you finish, you should have a few extra hundred dollars left in your budget every month. But getting there may be difficult. There are several strategies you can utilize to pay off your loan off more quickly. However, even the best option however, it can cause you to be in a more dire financial situation if you’re not mindful about your approach. 6 ways to get rid of your car loan quicker There’s no single way to pay back your vehicle loan prior to the timetable. In reality, it makes sense to vary your approach. When you’ve got an idea of what you want to do, you could benefit from a variety of methods to pay off your vehicle loan quicker. 1. Refinancing your loan with a different lender is a great option to pay off your loan faster. If you decide to take an a shorter loan period, you may be able to maintain the same monthly payments — if you can secure a lower interest rate. If you don’t pay extra or round your payments up, you will naturally finish the car loan faster. 2. Pay biweekly, even though it might not seem like much, paying twice a month rather than just one will get you closer to the finish line. It also helps to save money on . This is because interest will have less time to accumulate before you can make an installment — and also because you will consistently lower your total loan balance. It will help you get closer to the date of your early payment without significantly increasing the amount you contribute to your loan each month. 3. Round your payments up to the nearest hundred Similarly in rounding up your monthly payments, it will have a small impact month-to-month but a substantial change overall. If you round up your payments to the nearest hundred or at the very least, the closest whole number, you will slowly reduce the principal of your car loan. You will also get ahead of schedule, which will keep you ahead of interest and make it easier to get a quicker repayment. 4. Avoid unnecessary add-ons If you like gaps insurance or an extended warranty, or a service agreement to your loan, contact your provider and request that they cancel these. You’ll be able to receive a prorated reimbursement for the remaining amount, while also lowering the amount you pay each month. But rather than putting that money in your account instead, put it into your loan. In this way, you’ll be liable less overall and will benefit from a lump sum payment. 5. You can make a significant additional payment Tax returns, bonuses , and other large lumps of cash could be used to pay for your vehicle loan. Any time you can reduce your principal by a few hundreds of dollars, it’s likely worthwhile. Like rounding your payments and paying biweekly, it will prevent interest from adding up. When your loan amount decreases and your monthly payment increases, more will go toward principal, leading to an early payoff. 6. Pay each month Even you’re ahead of your schedule however, you should still make payments on your loan each month. This prevents interest from accruing which means that more money goes towards principal, further reducing the amount of interest you have to pay. In addition, making regular payments even in the absence of a need will lead to paying on your vehicle loan early. If you decide not to pay off your car loan early The ability to pay off your car loan early means an extra few hundred dollars in your pocket each month. In some instances, you could negatively impact your financial position more than you help — so it may not be the ideal move. Do not pay your loan early when there is a prepayment penalty. This is essentially a punishment for not making enough payments or for paying off your loan in advance. The lender is trying to make up with the amount of interest that you could have paid when you had adhered to the schedule. If there is a prepayment penalty, make sure it won’t cost you more than you’d pay in interest. Your loan makes use of pre-calculated interest . The interest you pay is front loaded each year so that the first month accounts for a higher percentage than the final month. If you are able to make payments on your loan in advance, you will not substantially reduce price of the car loan. In this situation it’s better to stick to the loan schedule. There isn’t a lot of debt. While it may seem counterintuitive, your credit score is calculated on the types of debt you’ve got and the duration of your accounts. Since auto loans are long-term debts that require regular payments over years can help keep your credit score high. A caveat is that the process of paying off your loan can reduce the credit utilization ratio, which is approximately thirty percent of credit scoring. If you have debts that aren’t paid off and an excessive proportion of debt to income (DTI) eliminating one of them will improve your score. Ways to lower your monthly car payments Aside from refinancing your loan, there are two ways to lower your monthly payments either defer them or ask for a loan modification. Deferment lets you skip a payment if you are experiencing short-term financial hardship. Lenders may offer one to three months of deferment to help you out. But deferment only moves the installments to the finalization of your loan and you’ll still have to pay them back at some point. Additionally, you will be accountable for interest and at the end of the day it will cost more. Lenders may be less willing to change the terms of your loan however, it’s not going to harm to inquire. Much like refinancing, will modify the conditions of your loan by either extending your time period or decreasing your interest rate. If you are able to negotiate an amendment to your loan or loan term, you can reduce your monthly payment without needing to sign a new loan with an entirely new lender. Next steps It may not necessarily be the best option to pay off your car loan in advance. If you’re facing penalties for prepayment or a potential hit to your credit score it aren’t enough to justify the expense. But if you want to eliminate debt, eliminating car payments is among the fastest methods of making room in your budget. Refinancing — or simply making extra payments — is the most effective way to repay your car loan quicker. Even if it’s just an extra few dollars per month, you’ll be able to reduce your debt and may cut a few months out the length of your loan. Find out more
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Written by Business and personal finance contributor
Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal finance. She’s also a full-time worker at her local library where she helps her community access information about financial literacy, among other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to manage their finances with concise, well-researched, and well-studied facts that break down otherwise complex topics into manageable bites.
Auto loans editor
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