Friday, July 12, 2024

How To Finish Paying Your Car Loan Faster

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How Long Did It Take You To Pay The Car Off

How to Pay Off Your Car Loan Faster! | Paid My Car 2 Years Sooner

It took us 18 months to pay it off in full. We took a large chunk of cash from our emergency fund and put it onto the car, cutting the balance down about 30%. I then started making double payments every month and did this for about 6 months.

I had just started traveling for work and since I had an increase in income we had even more money to throw at it. There were some months I put $1,000 on it.

Part of my compensation was $40 a day for meals and incidentals while on the road. I ate cheaply, and kept my expenses to under $10 a day, banking $30 a day while I was working. Over a 6 week job, this amounted to over $1,200 in tax free cash that I could throw on the loan.

Make Fortnightly Repayments Not Monthly

We’ve talked about monthly repayments, but if your loan allows for flexible repayments you could actually make repayments every two weeks. And this will get you out of debt faster.

How? Well, there are only 12 months in a year but there are 26 fortnights. If your monthly repayment was $2,000 you’d be repaying $24,000 a year . With fortnightly payments you’d be repaying $1,000 per fortnight, or $26,000 per year .

Making more regular repayments is always smart. Your lender calculates interest based on how much of the loan principal is remaining at the end of each day. So even if you made repayments every week you’d end up paying less interest.

Pay Your Loan Quicker With These 10 Tips

Interest, or more specifically compound interest, is one of the most powerful forces on earth. The sad thing is, very few people understand this and many of those that do understand it, fail to take advantage of it.

It works both ways. If you start a retirement savings plan early in life, the power of compound interest will be of great benefit to you over the long term of your saving. Conversely, the interest paid on a home loan over 30 or even 20 years is frightening. The same is true of vehicle financing, shorter term loans and hire purchase agreements. When you look at the actual amount that you have paid over the full term of the loan compared to the initial ticket cost of the item it is unbelievable.

Most people are not in a position to pay for everything in cash or need to take loans for a number of reasons. Fortunately, there are many ways to pay a loan off faster, thereby saving a significant amount in interest payments and also paying the loan off quicker. Another benefit of this is that if you do find your self with a short term cash flow challenge the additional amounts you have paid in will be of great assistance when you try to negotiate a solution with the credit grantor.

Here are 10 ways in which you can pay your personal loan off quicker

Pay more every month

This is a simple, painless way to save interest and pay the loan off quicker. There are two ways to do this. Round your payments up or simply pay an additional amount every month.

Refinance the Loan

Read Also: Transfer Car Loan To Another Bank

Make Payments Every Two Weeks

Instead of paying once a month, take your existing car payment and split it in half. Paying every two weeks means your loan balance is continually decreasing, which has the effect of paying less interest over the course of the loan.

Why it can be good. This is a way to essentially make an extra payment without forking over extra money.

Who it can be good for. By doing this, youre not paying any more than you normally would, but it has the effect of making an extra payment a year, so it may be especially good for someone on a tight budget.

How to do it. Check with the lender to be sure you wont run into any prepayment penalties. If not, make a half payment every two weeks instead of one full payment each month. You could automate your checking account to send the payment, or give permission to the lender to automatically pull the payment.

Ways To Pay Off Your Car Loan Faster

5 Ways to Pay Off Your Car Loan Faster

Do you have your eye on a big purchase? A house or second vehicle perhaps? Big-ticket items like these may seem out of reach if you are still making payments on your current car. If you want to free up some money, you can try the following strategies to get out from under a car loan quickly so that you can make your next big purchase.

Lots of people ask us how to pay off a car loan faster. There are multiple ways to do this, which means you can pick any option or options below to find the most effective solution for your specific needs. Here are seven things to consider for anyone wondering how to pay off a car fast.

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Make Extra Payments Against Principal

This is somewhat similar to rounding up your monthly payments, paying twice monthly instead of once monthly, or paying every two weeks instead of twice monthly. Since the interest is a function of how much money you still owe on your car loan, every dollar toward the principal will reduce the interest you owe.

To see if this can work for you, call your lender to see if theres any penalty for early payoff or extra payments to the principal. If your lender allows payments to the principal only, youre ready to get rid of car debt quickly. Make extra payments as early and often as you can, knocking down the remaining amount of money you owe. As you do this, youll be saving yourself money on interest every time you make a payment. Youre also reducing the length of your loan along the way.

Finding Money To Pay Off The Car Loan

One of the first things you need to do is find some extra cash in your budget. Easier said than done, right?

The good news is that we were able to find spots in our budget where we could save big . As new graduates, our income wasn’t big.

Here are some spots in the budget that can give you a boost of money.

Slashing Entertainment Bills

Believe it or not, I’m not telling you to skip out on TV or movies. We all need to veg out sometimes.

The good news is that there are plenty of options that don’t cost $150/month like some cable and satellite companies are charging.

Part of the problem is that most customers are paying way more for channels and extras they never use.

The solution is creating your own entertainment package at a fraction of the price.

Pick and choose what fits your family’s needs. For us, we have our Netflix and Hulu accounts tied to our Roku.

Switch Your Cell Phone Plans

Like many, I love my smartphone. I use it throughout the day. It’s a convenience that I don’t want to give.

With many of the major carriers, though, cellphone bills can easily eat up a family’s budget.

The good news is that there are some wonderful options out there for you to slash your bill while still keeping a great smartphone plan.

Yay for technology!

We were able to significantly cut our auto insurance premiums by switching providers.

Since we have an Executive membership at Costco, we also get free towing and jump starts included so we allowed our AAA to lapse and saved a bit more.

Also Check: Usaa Preferred Car Dealers

How To Pay Off A Car Early And Save Money

Think what you might do with no auto payments in your budget. Take more vacations, enjoy more evenings out or build up a savings pot for the future, perhaps. Whatever it is, pay off your car early and not only is that debt behind you, but you may have made a decent saving in interest charges, too.*

There are several common approaches to paying off a vehicle early, which center on the following:

  • more frequent payments
  • a combination of the above options
  • refinancing

Start by getting familiar with the details of your current contract, such as the amount, term and annual percentage rate, to help you calculate a payoff. Most retail installment contracts are structured using simple interest, in which interest is calculated daily on the outstanding principal. Thats important because the quicker you pay off the principal, the less interest will accrue and the smaller the charge will be. Also check whether your current lender imposes any prepayment penalties for an early payoff, which would affect potential savings.

Dont Extend Your Term To Get A Lower Monthly Payment

How to pay off your car loan FAST! The easy way! 2 Simple Tricks

When you choose your new loan terms, remember to keep your eye on the prize. You want to pay off your loan quickly so you save on interest. Dont be tempted by low monthly payments spread thin across 60- or 72-month terms theres a ton of hidden interest and fees baked into those drawn-out payment plans.

Instead, choose a short term of under 36 months with the highest monthly payments you can afford. Youll end up saving hundreds, often thousands, of interest this way and will become debt-free sooner.

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Using A Car With Negative Equity As Trade

You can fill in the rest of that ad with the name of just about any car and just about any dealership in the U.S. and the promise will be as empty as your bank account because it promises negative equity.

The ad plays on every station in every market in America and you have to admit its enticing enough to make you stop and think about doing it. Someone else bails you out of a bad loan situation and puts you into a new car with no out-of-pocket expense. Whats not to like about that?

Heres a word of advice from car-buying experts: DONT EVEN CONSIDER IT!

Trading in a car with negative equity to take on another car loan with even more negative equity is like throwing gas on a fire because its the only liquid you had handy. You just increased the chances for a serious financial meltdown and here is an example of why.

Lets say you owe still owe $10,000 on a car that is only worth $5,000. The dealer will pay off the $5,000 difference, but then roll that amount into the loan on your next car. So, if you needed to borrow $20,000 for the new car, the dealer rolls another $5,000 into the loan to cover the cost of paying off your previous loan and now youre borrowing $25,000.

Not only will your monthly payments be higher , but you likely will be paying higher interest on the loan.

And, dont forget, youre going to add more negative equity to your situation when you calculate the 20% depreciation in value the new car will lose when you drive it off the lot.

Round Your Balance Up

Mortgage payments are usually an amount to the penny, like $1,476.82 a month. You can pay off your balance faster if you round those payments up to $1,480less than $4 extra per monthor even up to $1,500, and you likely won’t miss the money.

Check with your lender to make sure that your extra contribution applies to your principal, not to interest or to next month’s payment.

Also Check: Transfer A Car Loan

Make An Extra Payment

Throwing a little extra cash at your balance once a year can shave a few months off the term of your car loan. This is a good technique if you cant commit to larger monthly payments but do get an annual bonus from work or a yearly tax refund. Put down whatever you can afford, but aiming to pay off an extra month each year is a good place to start.

Round Up Your Payments

Pay Off Your Car Loan Much Faster Using These Hacks ...

Say you owe $364.28 each month on a car loan. Rounding up is how to pay off your car loan faster. By simply writing a check for $400, you can whittle away at the loan quickly. You will hardly notice the extra $35.72 you send in just the cost of a couple of pizzas and a six-pack but every 10 months, you have made nearly an extra months payment. This can shave a lot of time off your loan.

Also Check: Sss Loan Requirements

Watch Out For Prepayment Penalties

Some lenders charge prepayment penalties. You’ll be hit with an extra fee if you pay some or all of your mortgage off early.

It should be mentioned somewhere in your loan documents if your agreement includes a prepayment penalty, so drag out the paperwork and check the fine print.

The good news is that these penalties don’t always apply throughout the entire term of your loan, but usually just the first handful of years. And they’re sometimes only charged if you pay off your entire loan in one lump sum, such as through refinancing, not if you make incremental extra principal payments. Check your loan documents to be sure.

Switch To Biweekly Payments

Biweekly payments simply make more sense for the average worker, who gets paid biweekly. You can schedule your payments to coincide with your paychecks.

Specifically, split your monthly payment in half and set up automatic payments every two weeks. It may seem like youd just be paying the same amount each year. But you really make 26 half-month payments each year, or 13 months worth of payments each year rather than 12.

You get to pay off your car loan early without even noticing the impact on your monthly budget.

You could also pay more than a half-month payment every two weeks to pay off your loan even faster.

Also Check: Golden1 Car Loan

Switch To A Cheaper Mobile Phone Plan

Perhaps the second-best way for young people to save money is to switch to a more affordable mobile phone plan.

Big telecom companies will convince you that you need an unlimited data plan just to survive, and that if you switch, youll need to buy a new phone. Neither is true SIM cards cost $2, and your new provider can jailbreak your phone for you.

As for data, unless youre an Instagram influencer who constantly uploads 4K videos, you can probably get by with a 5GB prepaid cell plan.

Don’t Borrow Too Little

How To Pay Down Your Car Loan Faster

If you only need a few thousand dollars, don’t apply for an auto loan. Instead, save your money . Small loans are paid off much more quickly than larger loans. Since the interest on the loan is how banks make money, they don’t want your loan paid off quickly. Because of this, smaller loans often have much higher interest rates than loans of higher amounts. This allows the bank to make a more acceptable amount of money off of you. Of course, some car purchases are emergencies, and the only option may be the fast one. Set your loan limit at $5,000 anything below that amount should come from your savings account.

If you’re certain you’ll need to take out a loan, consider utilizing an auto loan calculator to determine what kind of interest rate you’ll be able to afford.

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Save Time And Interest

Wondering how to pay off your car loan faster while saving interest? Increasing your monthly payment could be a smart way to save yourself money in the long run. The Bankrate Auto Loan Early Payoff Calculator will help you create the best strategy to shorten the term of your car loan..

Enter your information into the early loan payoff calculator below, including your additional monthly payment, and click Calculate to see your total savings. Click “view the report” to see a complete amortization payment schedule.

Refinance Your Original Loan

Many people keep paying out of habit without noticing their interest rate or other loan terms. Shop around, even if you only have a year or so remaining in your auto loan. A credit union, local bank, or savings and loan may have better terms. If you can find a great deal after you shop around, the actual cost of transferring the title to a new lender should be fairly low, around $100.

Some lenders offer discounts for online payments or payments done by Automated Clearing House . Combine a few of these angles, such as a local lender eager for your business, a slight drop in interest charges for using online services, and bi-weekly payments tied to your direct-deposited paycheck, and you could pay hundreds less each year on that auto loan.

This makes it well worth the time you put in and the cost of transferring the title. This is great if you have a high-interest rate, especially if your credit has improved since you got your previous loan. Before you talk to new lenders, you should know how much you currently owe, your APR, and about how much your car is currently worth. Also, confirm that you wont face high penalties for paying off your current loan early.

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Use A Lump Sum To Pay Off Your Loan Faster

Tax refund, bonus, commission, inheritance, yard sale, gift or lottery win? Whatever it may be, an unexpected windfall can be used to pay off a chunk of the principal in one fell swoop.

So there you have it. Check out our loan payoff calculator to see how overpayments can help you save money in the long run.

How To Pay Off Your Home Loan Super Fast

How to Pay Off Your Car Loan Faster

Greg and Melinda Kerr have followed a simple savings philosophy that has shaved years of their mortgage and saved them tens of thousands of dollars in interest.

Got any savings secrets? Share them with us

The sooner you start making extra repayments the better.

I always hated owing money to the bank, says Greg Kerr. And I never forget the saying, I think my dad told me, that a little bit will always add up to a lot. I just look at things and look to try and pay as much off my home loan as I can.

One of his tactics is to always save any gold or silver coins he receives in loose change. I have a container in my car that holds a couple of hundred dollars in coins and every time that’s full I put it into a big money box, then every year I’d take that to the bank and cash the coins in and it would come to about $4000 and I’d put that straight into the house, he says.

The other annual top-up to the mortgage comes from his tax return, though his most successful strategy has been to make weekly, rather than monthly, repayments on his mortgage.

So instead of paying, say, $2000 every month, I split that $2000 into four, so $500 a week, and then if everything was going OK with us financially, I’d increase those payments – I would pay $650 a week, it would come automatically, every single week.

The sooner the better

Check the difference

Find what works for you

Greg Kerr’s approach of increasing the interval of payments is another good strategy.

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