How To Pay Your Car Loan Off Early
Before completely paying off your car loan, review your options to see which one makes the most sense for your financial situation, like:
- Pay off the full amount. In order to pay off the entire remaining balance, it may require a few hundred or thousands of dollars to be paid at once, depending on how much is left on your car loan balance.
- Pay a partial payment. If you got a bonus at work or maybe sold something for a hefty chunk of change, you can use that money to make a large partial payment on your car loan.
- Boost monthly payments. If you got a raise at work or a new side hustle, you can increase your monthly payments in increments. This will reduce the number of monthly payments you need to make to repay your car.
How This Man Paid Off His Car Loan Early And Saved Hundreds
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Loan Early Repayment Analysis
Based on the figures entered into the Loan early Repayment Calculator:
- If you continue to make monthly payment of you will repay your loan months quicker than if you just paid the standard monthly installment of
- You will reduce the total amount of interest paid on the loan, reducing from to which is a saving of in interest payments
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Ways To Pay Off Your Car Loan Early
Paying off your car loan early can help you lower your car insurance payment since you no longer have to carry full coverage. It also lets you put more money toward student loans and high-interest debt like credit cards and personal loans. And once youre debt-free, you can put more money in your emergency fund and retirement accounts.
Once you decide to pay off your auto loan early, its just a matter of determining the best quick-loan payoff method for you. And all these tactics work well in helping you knock out your car loan quickly.
Reduce Your Term Length
A loan term is the amount of time a borrower is allowed to pay back the funds provided to them from the bank. Terms are typically measured in months and can range anywhere from 24 to 84 months in length. The longer the term length, the smaller the monthly payments will be.
However, smaller monthly loan payments do not equate with paying off your auto loan faster. Taking as long as seven years to pay off in full, car loans can last for a significant portion of your primary working career. Choose to reduce your term length to a number that best reflects your personal financial goals, taking care to calculate your monthly payments using a financial calculator.
As an additional bonus, shorter-term lengths often are associated with lower interest rates. In the end, shorter-term lengths are an excellent way to reduce total payments and conserve your financial resources.
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The Bottom Line Of Paying Off A Car Loan Early
Your personal financial situation will determine whether paying off a car loan early meets your financial needs. Assess your personal needs or speak with a financial professional to decide whether paying off a car loan early is the right decision for you.
Remember: Before committing to a decision, discuss your specific situation with a financial professional to help you weigh the pros and cons of paying off your car loan early.
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Using The Auto Loan Calculator
- This calculator uses your original loan amount, length of the loan and interest rate to calculate your current monthly payments. From there, enter the number of months left on the loan, then enter how much extra you’d like to pay each month to see how much sooner you’d pay it off.
You can adjust that figure using the slide bar to experiment with how varying the additional payment would affect how early you can pay off the loan and how much interest you’d save. Your results appear instantly at in the blue field at the top of the calculator and just below it at right as you adjust the extra payment figure.
- FAQ: Arm yourself with various scenarios that fit your budget goals
Start by entering the number of months remaining on your car loan, than enter the full length of the loan, in months. If you want to see the effect of making extra payments over the entire length of the loan, just enter the full length of the loan in both places. Next, enter the amount of the loan and the interest rate. The calculator will immediately display your regular monthly payment for the loan in the place indicated. Next, enter any additional amount you’d like to pay each month. The number of months you’ll shorten your loan by and your interest savings will appear at the top of the page.
Cutting Down On Interest Charges
Interest is what costs to finance what youre buying. Those with poor credit typically qualify for higher interest rates than borrowers with good credit, which leads to higher interest charges over time.
These charges add up on a daily basis, based on the balance of your loan. The faster you pay off the loan, the less you’re going to end up paying in interest charges.
You can typically pay off your loan early because most auto loans are simple interest loans. Years ago, there was a time when this wasn’t the case, and lenders charged prepayment penalties to consumers that attempted to save a few bucks by making either early or multiple payments.
Luckily, that’s not the case today, and loans like that are rare. This is why it’s so important to read your contract carefully before you sign it. If your car loan contract contains prepayment penalties, you should think twice before signing, especially if you’re getting a high-interest loan due to bad credit.
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What Fees You Might Have To Pay
Some lenders include aprepayment penalty in the car loan agreement for paying off the debt early. Be sure to check if your current loan has prepayment penalties, as it could negate any savings you get through refinancing.
Depending on the lender, you might also have to pay an application fee, registration fee and/or title transfer fee. When refinancing, some states will also require you to pay to re-register your vehiclebut the cost of these fees depends on where you live.
Can I Pay Off My Car Loan Early
Generally yes, youre allowed to pay off your car loan early. In fact paying off your loan early can cut down on the total cost of your car, because theres less time for interest to compound on your loan. However, loans with pre-computed interest ensure that lenders get their full interest payment, regardless of how soon you choose to pay off your loan. In these cases, early repayment can only get you out of debt faster, but youll pay the same total amount either way.
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Make Payments On Your Extra Pay Periods
If you want to make additional payments but feel like you cant commit to a biweekly payment, think about making additional payments on your extra pay periods. You might already use your extra paychecks to buy new clothes or treat yourself to a spa day, but consider giving them a new use and pay off your car loan debt. You will be able to make plenty of fun purchases without worry once your loan is paid off!
What If My Finance Provider Charges Precomputed Interest
Unfortunately, these tips might not work if your car finance deal uses precomputed interest, which means you pay the same amount of money no matter how early you pay the car off.
Although it can be hard to keep up, try not to miss any payments. If you miss a monthly repayment youll be faced with late fees, meaning itll take longer to pay off your loan.
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Stay Disciplined And Stick To A Plan
Paying off your car loan early takes discipline. You need to be willing to make some sacrifices in order to free up extra money each month to put toward your loan.
This might mean cutting back on your spending, dining out less often, or giving up other luxuries.
Ultimately, its important to create a plan and stick to it.
Even though it might be difficult at times, the satisfaction youll feel when you finally pay off your car loan early will be worth it.
How Do I Find Out My Car Loan Amortization Schedule With Extra Payments +
You can get an idea of your amortization schedule when you use our auto loan early payment calculator. You will be shown just how much you’ll be owing at any period in the life of the loan for both regular payments and accelerated payment plans that use extra payment.
Is there a ‘remaining car loan payoff calculator’? +
Yes, there is a remaining car loan payoff calculator. This auto loan early payment calculator provides you with accurate information about how much money you still have to pay off on a car loan. You will, however, need to supply details on the loan amount, period, and extra payment.
How to pay off car loan calculator faster? +
An auto loan early payment calculator helps you save money by making extra monthly payments. It works when you supply details of the loan term, loan amount, additional monthly payment intended, current payment, and interest rates. You then get a report on how much you save in terms of money and time on the loan.
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How To Pay Off An Auto Loan Early
Relying on a car loan to buy a vehicle can be an expensive gamble. The average amount customers borrow for a new car is $32,480, according to LendingTree, and the average monthly car payment is $550 over 69 months with 8.06% APR. If you have other forms of debt, such as student loans or credit cards, thats a large chunk of your income to spend on another loan.
If you borrowed the average amount of $32,480 and had a 69-month repayment term at 8.06% interest, youd pay $8,213 in interest. Thats an extra $8,213 you could have used to pay for other goals, such as paying down debt, building an emergency fund or even planning a vacation.
The thought of wasting extra money on interest was a wake-up call for Lenz. Even though he had a low interest rate of 2.19%, Lenz is a Dave Ramsey fan. And according to Ramsey, debt any debt at all is an emergency that requires immediate action.
With that mindset, Lenz felt like the loan was a drag on family resources.
For two years, we didnt do anything to accelerate payments, he said. We just paid our regular payments every month. Something just clicked about six months ago. When I looked at the numbers, I saw that if we used our extra money like what we put towards savings we could hammer out the loan in a short time.
Avoiding interest charges and having one less financial obligation was a major motivator for Lenz and his family.
How To Accelerate Debt Repayment
After thinking about how to pay off their auto loan early, Lenz and his family set up an aggressive repayment strategy. Because the car loan was a priority to them, they juggled some of their other financial contributions. They did the math and decided it was worth it to cut back on contributing to their retirement and kids education funds.
They also looked around their home for things they could sell for extra money to use for payments. They sold toys, clothes and household items on sites like Craigslist to make more money.
Lenz advised look around and figur out what you have that you dont use.
People have hundreds or thousands they dont use, and that can give you a good start, he said. It can give you enough momentum to build the habit of thinking about paying off debt.
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If Your Lender Wont Accept Principal
If your lender will not accept principal only payments, you have two choices:
- Refinance the loan with a lender who will accept principal-only payments. Make sure that you get written verification before doing the refinance. You can get multiple different online with just one simple application.
- Make your additional principal payments to a dedicated savings account, and when the savings account balance is high enough, pay off the loan completely.
But before you do any of that, check to see what the laws are in your state in regard to principal-only car-loan payments. If your lender doesnt allow it, but state law does, you can cite the law and require that they make a provision to accept the payments.
How To Save On Interest Without Paying Off Your Car Loan
Paying off your loan in full isn’t the only way to reduce the interest you pay over time. If your credit score has increased and market rates have decreased since you borrowed money for a car, you could also consider refinancing your loan. Refinancing to a lower interest rate may lower your monthly payments and the loan’s overall cost.
You can use Experian’s credit monitoring tool to see where your credit stands before shopping around to compare rates. Just keep in mind that your current lender may also charge a prepayment penalty if you pay your loan off with a new loan from a different lender, so you’ll need to make sure the savings from refinancing will be worth paying the applicable fee.
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Should I Pay My Car Loan Off Early
To recap what weve covered, you should try to pay your car loan off early if you have a high-interest auto loan and no opportunity to refinance. Even if you have a low interest rate, you can get out of debt faster if you pay off your car loan early.
Once youve paid off your loan, make sure to tell your car insurance company so you can remove the lien holder from your policy. You can contact them right after the loan is paid off, so you dont need to wait until you have the title to make the call.
If you decide to pay your car loan off early, hopefully you have some good strategies that youre ready to implement.
Always Make Your Payments On Time
Hopefully this goes without saying, but if you want to pay off your car loan early, always make your payments on time.
This is the only way to avoid late fees, which can end up costing you a lot of money in the long run, and eating up additional income that could have otherwise gone toward the principal of your loan.
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Pay A Little Extra Each Month
Another option is to pay a little bit extra every month by rounding up the payments to a higher number, say to the nearest $100. For example, if your car payment is currently $275 per month, you can round it up to $300 and pay an extra $25 per month. This can take longer than making one lump sum, but it could be a good choice if you only have a bit of extra income a month to spare for paying off the car loan.
