In 2019, the average car loan payment in the US reached an all-time high of $554 for new cars. That equates to paying more than $6,000 each year. We’d all love to have an extra $500 a month. The sooner the car loan is paid off, the sooner we can put that money to other uses. How do you pay off a car loan faster? The good news is that there are several ways that you can speed things up.
Keep reading and take a look at some of the best ways to pay off your car loan as quickly as you can.
One of the best ways to pay off your car loan faster is to replace it with a better one. Refinancing your auto loan allows you to take out a new loan to pay off the balance of the old one. That means that you will be able to pay the new loan off more quickly than the old one.
If your credit score increases, you may be able to negotiate a new deal with your current lender. If not, you might be able to find better deals elsewhere. Compare different rates to find the best options available to you.
How Do I Know If Refinancing Is Worthwhile?
Refinancing is only worthwhile if it’s going to save you money and help you pay off your car loan more quickly. There are a few signs that it might be worth looking into refinancing.
Interest Rates Have Fallen
Interest rates are currently lower than ever. If you took out a car loan at a higher price, you would be able to find a lower rate. You will still need to do the math. There may be a fee for paying off your current loan early, so you’ll need to factor this into the equation. If you were already on a low-interest rate, then refinancing may not make financial sense.
Your Finances Have Improved
If you’re earning more money, or have cleared some of your debts, you may now have reduced your risk as a borrower. This means you will be able to get more favorable rates than you could previously. If your credit score has improved, or you’re earning more each month, then take a look to see what refinancing options are available.
You Didn’t Get a Great Deal
You should always shop around to ensure that you find the best car loan for your needs. If you discovered there were better deals available after you took your car loan out, then you should be able to refinance onto a better deal than you’re currently on.
Pay Every Two Weeks
Another clever trick for paying off your car loan more quickly is to make bi-weekly payments instead of monthly ones. Instead of your monthly payment, pay half of that amount every two weeks. At first glance, this may seem like you’re paying the same overall, but since every month other than February is longer than four weeks, you end up paying more over a year. There are 52 weeks in a year, which means you will make 26 payments in total. Since each payment is half your usual monthly payment, it equates to 13 monthly payments instead of 12.
Although one extra payment per month may not seem like much, it can save you a significant amount of interest over the loan’s lifetime.
Another simple way to pay off your loan more quickly is to round up your payments, meaning that you’re paying off a little extra every month.
For example, if you were making a $531 payment per month, you could choose to round that up to $550. Not only does it make your monthly payment amount easier to remember, but by the end of the year, in this case, you would have paid off an additional $228. If you decided to round up to $600 per month, you’d have paid off more than $800 extra. Make sure that you only round up to a figure that you can afford. You can always increase or decrease the amount that you round up by at any point.
Pay Off Lump Sums
Sometimes we may have access to a lump sum of money. This could be from a tax rebate, a bonus from your employer, or money from a relative. It’s tempting to splash out on something when you see that extra money sitting in your bank. The more sensible option is to use that lump sum to pay down some of your car loan. The reason that this is a better idea is that by paying off your loan more quickly, you’ll have less interest to pay overall.
Once the loan is paid off early, all the money that was earmarked for your monthly payments can now be spent on whatever you wish.
Fold In Completed Debt Payments
Most of us tend to have more than one debt repayment to make each month.
We may have student loans, mortgage payments, or other personal loans that we’ve taken out. If you finish paying off any of these other debts before your car loan, then consider folding those payments into your car payment. If you finish paying off a personal loan with a monthly payment of $100, then carry on paying that $100 a month towards your car loan. Your monthly outgoings won’t have changed, but you’ll be paying off your car loan much more quickly.
Reduce Car Insurance Payments
If you have a car loan, then you likely have a car, and that means you’ll also have auto insurance. This is another expense each month that is reducing the amount that you could be paying towards your car loan. If you can reduce your auto insurance costs, you’ll have more money to pay off your car loan a little more quickly. The good news that it’s relatively easy to find great deals for car insurance when it comes time to renew your policy. You should often be able to find a better offer other than the one your current provider is offering.
By shopping around and using comparison tools, you can find the best deal for you available. Hopefully, this will help you reduce your monthly auto insurance payments and then put this money towards paying off your auto loan a little sooner.
Get A Side Hustle
Paying off your car loan more quickly requires paying more than you currently do. You may not have the money to spare to do this. In this case, you might consider finding a side hustle to earn a little extra money. There are a number of ways you can make extra cash outside of your job. These include:
- Selling unwanted electronics
- Renting out your parking space
- Starting a blog
- Freelance writing
- Driving for Uber or Lyft
- Taking stock photos
- Using cashback sites
- Becoming a tutor
Any extra money that you make will help to pay off your car loan more quickly. Not only will you be free of the debt sooner, but you’ll also pay less interest.
If you need to pay off your car loan more quickly, and none of the options listed above are possible, you could take a slightly more drastic measure. Selling your car and replacing it with a less expensive model can work. If you don’t have a considerable amount left to pay off, you may be able to sell your car, pay off the remainder of the loan, and have enough left over to afford to buy a cheaper car.
Even if you require a small loan to purchase the new car, if the amount you borrow is lower than your previous loan, you will be out of debt sooner.
Are You Trying to Pay Off A Car Loan Faster?
If you’re looking to pay off a car loan faster then we’re here to help give you tips.
We work together with RateGenius to help you find deals for refinancing your car loan. Last year, RateGenius saved drivers an average of $937 on their car payments. We can also help you find ways to save you money in other areas, including tips and advice on insurance, mortgages, credit cards, and more.
Take a look at your auto refinance options today, and let us help you find a way to pay off that car loan faster.