Why pay more than your car is worth when you can settle your car loan early? Approximately seven out of 10 people borrow money to buy their cars, and a car loan is one of the largest financial obligations you can have. If you’re one of them, you may have a loan that will take you 60 or 72 months to pay off. That’s five to six years! That’s too much interest to want to pay. So, we want to help you get out from under that loan faster and save money on interest by providing you with multiple ways to pay off your car loan early. Apply for a car loan today.
Pay Half Your Monthly Payment Every Two Weeks
This strategy may seem like a wash, but if your lender allows you to do it, you should. With a payment every two weeks, you’ll end up making 26 half-payments each year. That adds up to 13 full payments a year, rather than 12. If you have a 60-month, $10,000 loan, you’ll save almost $35 in interest, but you’ll repay the loan in 54 months rather than 60. That’s six months of your life back and can be an easier transition if you get paid every two weeks.
Instead of just paying what is recommended, round your payments up to the nearest $50 to help repay your car loan more quickly. For example, if you borrowed $10,000 at a 10% interest rate for 60 months, then your monthly payment is $212.47. With that payment, you’ll repay your car loan in 60 months, having paid $2,748.23 in interest. But if you decide to round up and pay $250 a month, you’ll repay your car loan in 47 months, having paid only $2,214.69 in interest — saving you $533.54!
Make One Big Extra Payment Per Year
This is the one-time version of rounding up. However, it doesn’t matter when you do it. Suppose you borrow that same $10,000 over 60 months at 10% interest. If you make an extra payment of $500 a year, you will repay the loan in 49 months, having paid $2,279.35 in interest — a savings of $468.88 in interest.
Make At Least One Big Payment Over the Term of the Loan
And the savings just continue. By making at least one, larger extra payment a year, you’ll save even more in interest. Just remember, the earlier you make your big payment, the sooner you’ll pay off your car loan. The early bird gets the savings, or however it goes.
Don’t Miss Payments
Some lenders will let you skip your payment once or even twice a year. Resist the temptation. Skipping payments will extend the term of your loan and cost you more in interest.
Renegotiate Your Loan
This is where you take your loan and negotiate a new monthly payment and pay-off date. Only do this if it gets you a lower monthly payment and/or a sooner pay-off date (re: term). Otherwise, refinancing makes no sense. You don’t want to lower your monthly payment and extend the term of your loan because you’ll end up paying the same principal and a lot more interest.
Remember To Check Your Rate
Even if the outstanding balance of your car loan is large, it’s unlikely to be your loan with the highest interest rate. That honor tends to go to credit cards, the average rate of which is about three times higher than the average auto loan interest rate. Consider focusing on paying off your credit cards before focusing on your car loan to save the most money and raise your credit score. But if you’re focusing on your car loan, we hope this has helped you create a winning strategy toward becoming debt-free and even keep a few extra dollars in your pocket as you pay off your car loan early.
Paying off your car loan early can save you money and free up your budget for other things. Whether you’re a newcomer to Canada, someone with bad credit, or a recent graduate, these strategies can help you become debt-free sooner. Apply for your car loan now.