How To Pay Off Your Car Loan Fast Use These Tips And Hacks
When you apply for a car loan that’s the first step, getting the auto loan is the next step, and then comes paying for your auto loan – it’s not as fun as the anticipating and qualifying for a car loan and picking out the car you want, but, your auto loan can be paid off faster saving you a ton of cash.
Check out these car loan tips and hacks to get your new car loan paid off sooner than you planned.
Getting your car loan approved is just the first step in owning your dream car. As a matter of fact, it is the least of your worries. The most difficult part is the process of paying your car loan back.
The first thing you need to think about is getting your loan balance paid off as quickly as you can. The good news is not only does paying off your auto loan quickly make your life easier, but without a car payment, you’ll save a ton in other additional fees and additional payments so you can have extra money for a rainy day.
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You can commit to paying off your car loan early by making extra payments. Choosing to pay your car loan in the shortest amount of time possible is the right decision and the best way to help you save a significant set amount of money in higher interest rates compared with paying it in the long run.
Having a low interest rate is an easy way to spend less money on a car note. Getting your car loan out of your way can give you more money for your bills, savings, emergency fund, and other expenses.
Not only does paying off your car loan sooner take a huge weight off your chest, financial situation, and your budget, you can sleep peacefully at night knowing that you don’t have that big debt and large payment anymore.
So, how can you achieve your goal of paying off your car loan quickly? Check out these useful tips to help you finish paying off your car loan.
1. Understand The Interest Rates
When you pay off your car loan faster, you can avoid paying the extra interest. Depending on where you got your new loan and the credit score reflected on your credit report, the total interest rate may be anywhere between 2% to 25%, according to Nerdwallet.
As a borrower, you need to understand what type of interest you’ll be paying. With a car loan, you will likely be paying simple interest, which is calculated on the principal balance of the loan.
There are also lenders who charge precomputed interest. To know how much money you need to pay, the lender will take the original length term of your loan, like 48, 56, or 60 months, and use it to calculate how much you need to pay in full.
The difference with a precomputed interest is that you cannot make extra interest payments to just the principal balance. Whether you pay off your loan early or not, you will still end up paying the same amount of interest you agreed on.
The simple interest method uses the amount or actual balance outstanding on the day your payment is due. If you pay more than your monthly payment, this amount should get smaller as you pay down your loan. The precomputed interest method always uses the original payment schedule to figure interest, even if you make early payments.
If you have a contract with precomputed interest and plan to pre-pay your loan early in full or make larger payments in advance of your regularly scheduled amount, you will not get the same reduction in the interest charges that you would if your contract had a simple interest rate. If you pay on time for each payment over your loan term, there is little difference between simple and precomputed interest. Via ConsumerFinance.gov
If the lender is offering a loan that comes with precomputed interest, ask for a simple-interest loan instead. Credit union, banking institutions, and any financial institution use simple interest.
2. Pay Extra If Your Budget Allows
For example: Before Kaye got her car, she budgeted $400 before she started looking. Her monthly car payment ended up being just $355, which is $45 lower than she expected. Rather than paying the minimum monthly payment amount, she paid the full payment of $400 she had budgeted for her monthly budget.
Since she’s paid an additional monthly payment of $50, she paid $600 extra every year on her loan. When she used the Auto Loan Early Payoff Calculator from Bank rate, the loan amount she’s paying helped shorten her auto loan payments term by 8 months which results in a savings of $500.63 over the life of the car loan.
3. Treat The Loan Like A Mortgage
A lot of finance experts are recommending the 13th payment every year to pay your mortgage faster. You should apply this great way of thinking of paying for your car loan.
In fact, according to Payoff, you can finish a 60-month loan amounting to $10,000 in as short as 49 months if you are making extra early payments every year. That’s so much interest! Doing that would save you $468.88 in interest.
You can also ask your lender if you can split the monthly payment into bimonthly payments. This works best if you are paid every other week. If you do your regular payments like this, you would end up making 26 payments or 13 full monthly payments in a year.
4. Earn Money On The Side
Earn some extra cash on the side to help pay your auto loan. Find a side gig or side hustle to help you earn additional income by utilizing your skills.
For example, Kaye had training in social media management, she earned extra by handling the social media accounts of online clients. The money she earned from these freelance projects helped pay off her car loan faster.
You can also tutor kids on the side or do some baby or dog sitting to earn extra income. If you’re good with directions, you can put your car to work by being an Uber driver. Renting your extra room via Airbnb (which by the way Airbnb had 5.6 million active listings in 2020 and 4 million hosts at the end of 2020), can also add hundreds to thousands of dollars to your savings.
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Make sure that the money you are earning on your side gigs goes directly to your car loan. Just make sure you don’t replace what you budgeted but, use this as EXTRA to help pay it off sooner and save that money! You may open a separate bank account where you can deposit your extra money and use it to pay off the course of the loan every month.
5. Put Your Bonus Money On Your Loan
Do you receive a Christmas bonus from your company? Don’t spend it all on holiday gifts! Put a portion of it into your car loan payments. If you want to speed up your auto loan, you can even save it all to pay for a whole month or two. Any extra money you have, you can put it towards your car loan.
The sooner you pay your debt off, the sooner you can enjoy what you earn!