These days, car loans can make up a large percentage of people’s personal debt. You can reduce the amount of interest you have to pay over time by paying off your car loan early, putting you on the road to financial independence. Today, we’ll discuss five easy ways to pay off your car loan early.
According to recent statistics, people commonly have vehicle loan terms between 72 to 84 months. If you’re one of those people, you’re not alone. Most people need cars to function in everyday life, but car payments are a real financial burden. Fortunately, paying off a car faster than its stated terms can be accomplished with the right mindset, motivation, and budgeting skills.
Paying Off Car Debt Fast: Why Is It Important?
Experian reports that monthly car payments range from $391 to $544, depending on whether you have a new or used car. And if you have bad credit or missed payments, these numbers can be even higher.
Every year, vehicles owners pay thousands of dollars on principal and interest. The large amount of money associated with an auto loan can cause some to fear for their financial future. This is why many drivers are determined to pay off their car loans and become more financially independent.
A car payment is often a significant barrier to achieving financial freedom for some people since they take up a considerable amount of the monthly budget. The faster car loans are repaid, the faster you can manage your wealth.
Paying down personal car debt is an excellent method for removing excess financial burdens that affect your lifestyle. If you pay off your car loan early, you can eliminate a monthly payment from your budget and save money. After all, the longer the term of your loan, the more interest you’ll pay. So paying off your car loan early can be a massive weight off your shoulders.
Check Your Loan Balance, Interest, and Penalties
Before you even begin to implement these ideas, you need to first look at the terms of your car payment.
First, you should know that a car payment is considered too high if it accounts for more than 30% of your total income. Fuel and maintenance expenses should also be included in this calculation since a car payment is not your only vehicle expense. As a rule of thumb, don’t let your car payment exceed 15 – 20% of your total income.
Check your loan balance after reviewing your car payment, and see if you can pay off your loan early without paying penalties. Most of the time, early repayment is permitted. However, additional fees may be attached, which would ultimately cost you more money. And it is crucial to pay attention to penalties if your credit rating is poor or your interest rate is high.
For a car loan with a high-interest rate, the longer the loan term, the more interest you can accrue. As a result, paying off your loan early can save you money because you won’t have to pay as much interest. Then, instead of a big payment every month, you can save that money for other essential things. You can calculate how much money you can save by utilizing an auto loan calculator.
Even if you do decide to pay off your car loan balance, you should keep the account open for the loan’s entire term. This demonstrates that you paid your loan on time, which can help boost your credit score.
Five Tips for Paying Off Your Car Loan
Make Sure You Don’t Skip Payments
If your lender permits you to skip a payment or two, You might be tempted to do so. But you won’t reach your goal of paying your loan off early if you skip payments. Instead, you will lengthen the loan’s term and pay more interest.
Rearrange Your Current Budget
To pay off a car loan faster, you must redistribute your current income to the goals that matter most to you.
The easiest way to create a budget is a notebook and a pencil. But you can also use a spreadsheet method, an online budgeting tool, or an app. Many budgeting apps are free to use and are available on virtually all devices. Choose the method that best fits your lifestyle.
Prepare a new budget by listing all of your estimated monthly income. Then, create categories for your monthly expenses, including payments for your car loan. How many categories could be reduced for a certain period while payments are being made?
Consider temporarily cutting out any extra expenses you might have. For example, get rid of your streaming services, landline, and other monthly bills you can do without. In addition, you might save some additional money by temporarily cutting a few things out of your budget—such as shopping, entertainment, or take-out meals.
Find a Side Hustle
Increasing your income is one of the most efficient ways to accumulate wealth. In other words, the more money you earn, the more you can put toward paying off your car loan faster.
Find a way to raise your monthly income through the resources you have on hand. Some ideas for increasing income include:
- Taking on a part-time weekend job
- Working overtime at your current job
- Selling items at your garage sale
- Making and selling crafts
- Walking dogs or petsitting
- Tutoring students online
- Creating a blog
- Becoming an influencer
Do Paid Online Surveys
Another flexible way to make money from home is with paid surveys. Surveys are the perfect way to make extra cash in your spare time. The best part about this side gig is that you can do it anytime and anywhere. As long as you have internet and a computer or smartphone, you can take surveys for money.
The best part is you can squeeze in this side job whenever you have a few extra minutes. For example, you can take surveys between classes, while waiting for your ride, or on your lunch break. Once you cash out your earnings, you can apply them to your auto loan right away. If you do paid surveys for the sole purpose of paying off your car loan, you can reduce the amount you owe in just a short time.
Make Some Extra Car Payments
Unless you make additional monthly payments on the principal, you won’t be able to pay off your car loan faster. There are three common methods people use to make extra payments on their car loans:
One or More Large Payments Each Year: Making a lump sum payment toward your loan will reduce the overall cost of your loan. Many people choose to do this when they have a windfall, such as their annual tax refund.
Twice-Monthly Payments: Paying twice a month will pay off the principal faster and reduce interest accruals.
Round Up: Rounding up the amount of your loan payment each month can get you where you want to go faster. For example, if your payment is $575, round it to $600. This is a relatively painless way of paying off your car loan sooner.
The last way to get your car loan paid off faster is to remove unnecessary add-ons. Unfortunately, car owners often don’t realize how much extra they’re paying when accepting add-ons to their auto loans. The two most common add-ons are warranties and service contracts. If your car is running just fine, consider canceling these extras. It will likely result in a lower monthly payment.