Over 100 million Americans have a car loan. That number is just shy of half the adult population.
This means that about 1 out of every 2 people have a car payment awaiting them each and every month.
Are you one of those people making personal loan payments each month? Do you feel like you aren’t getting ahead of your car loan? Do you feel like the loan is going to linger over your head forever?
You’re not alone. A lot of people are in the same boat. You’ll be relieved to find out that there are ways to get out from underneath your auto loan faster.
Learning how to payoff a car loan faster can have several benefits, including huge emotional relief, increased financial stability, and more liquidity of your assets.
Keep reading to see how you can get your car loan off your plate, and free up your income, in the shortest time possible.
Be Warned: It Won’t Help Your Credit Score
You need to be aware that while paying off your car loan early will save you money on interest in the long-run (and reduce the worry of having the pay the loan), it won’t do anything for your credit score.
Most people assume that less debt means a bump to their credit score number. This isn’t true for installment loans, such as a car loan, for two reasons.
First, you should know that over one-third, roughly 35%, of your credit score is based on your ability to make consistent payments. A loan, such as a car loan, is an installment loan. This means that there is a fixed interest rate for the life of the loan and your monthly payments are stable.
Assuming you pay each month, on time, you are creating a record of steady payments across the life of the loan. This record is more beneficial to your credit score, meaning it keeps your credit score higher than paying off your debt and utilizing less overall credit.
Second, another 10% of your credit score is based on the diversity of your credit lines. This means that you have a mix of revolving credit, such as credit cards, and installment loans, such as car loans.
When you pay off your car loan, the credit line is considered closed.
This decreases the diversity of your credit. While paying off your car loan won’t help your credit score (in fact it may take a little dip), it doesn’t mean that paying off your loan ahead of the due date is an irresponsible financial move.
10 Tricks and Tips for How to Payoff A Car Loan Faster
Paying off your car loan faster will save you the money in the long run. Once decide that paying off your car loan faster is the best option for you, regardless of what it does to your credit score, you need to make a plan of how to do it.
You will want to try out some of these ten tips and tricks to help pay off your loan faster.
1. Avoid Fees
At all costs avoid tacking extra money onto what you owe in the first place. You don’t ever want to pay more than you have to.
This means that you need to avoid late fees. Missing payments is no longer going to be an option.
You also cannot allow a check to bounce. The administrative fees for a bounced check are extra costs you don’t want to pay.
Whatever you can do to avoid extra fees, do it. If this means you pay by debit card instead of a bank transfer, do it. The couple of extra dollars every month in fees will add up over the life of your loan. If you accrue $20 in fees each month, you’ll end up paying an extra $240 per year that you didn’t originally borrow from the lender.
Keep your balance as low as possible. It makes paying off your loan a little bit easier.
2. Set Up Automated Payments
Automated payments mean that you don’t have to think about paying off the personal loan no credit check. It just happens. It takes the headache out of making sure you don’t miss a bill.
Automatic payments make it so you are never late on your payment.
It also means that the money is already allocated to the loan. You don’t have the option of spending that money on something else instead of your loan, because it will be automatically deducted from your account.
3. Avoid Early Payment and Other Types of Prepayment Penalties
You need to check with your lender before you change your payment plan.
Depending on the loan, you may get hit with a prepayment penalty if you pay off your loan ahead of the loan terms. This early payment penalty is designed to compensate the lender for the amount of money they will no longer be able to collect from you in the form of interest.
Find out what kind of penalties you will face for paying off your loan early. It may not save you money in the long run to pay more each month. Do the math and decide what the smartest course of action is for your wallet.
The difference between what you’d pay in interest over the life of the loan and what you’d pay as an early payment penalty may be negligible. If this is the case, it may not save you money over the life of the loan, but it may free up your income for something else down the line.
There are still benefits to paying off the loan faster.
4. Make Bi-Weekly Payments
Change the way you pay your bad credit loan. If there is no early payment penalty, or you want to pay the loan off faster regardless of the penalty, you should choose to set up automated bi-weekly payments.
Using this method, you submit half the monthly payments to your lender every two weeks, instead of making one monthly payment. This will accomplish three things:
- This reduces the accrued interest. Applying payments more often reduces the amount of time the loan is accruing interest on the principle.
- You make an extra payment during the year. There are 52 weeks in the year, which means that you’ll make 26 bi-weekly payments. That is the equivalent of paying one extra month when making 12 monthly payments.
- You shave several months off the life off the loan. 26 payments per year reduces the life of the loan by several months.
5. Always Round-Up on Your Payments.
Once you set up automated payments, set the amount you pay each month for a little bit more than what is due.
If you owe $245 per month for your car loan, set your automated payments for $275. The $30 per month likely will not break your budget, but it will help you contribute $360 extra to your loan each year.
That’s the equivalent of making an extra payment each year.
Much like paying bi-weekly, making an extra payment shaves months off the life of the loan.
When you are over-paying the loan, contact the lender with the instructions that the additional payment should be applied to the principle first, not the interest first.
6. Increase the Money Coming In Each Month
If you can throw any extra money at the loan, do it. Even if you are unable to set up higher monthly payments or make bi-weekly payments, you should be contributing as much as you can.
As little as $100 per month of extra payments will pay off $1,200 more per year. Although $10 here and $20 there doesn’t seem like a lot, it will make a difference.
Where to Find Extra Money
Finding extra money to contribute to loans isn’t hard, but it does take some creativity. If you don’t want to tighten the budget (maybe by dropping that gym membership that you never use?), you can always increase the money coming in.
This means that you can pick up a side hustle. Selling items on eBay or picking up a part-time tutoring job can bring in a couple extra bucks a week.
You can also commit now to using your tax refund, Christmas bonus and birthday money from Grandma specifically for your loan repayment. Allocating that money to your loan before you even have it in hand makes you more likely to follow through on the plan.
7. Refinance Your Loan
Check out your current loan. Now go research refinancing options.
Chances are that you can lower your payment, save on interest and pay off your loan in less time by refinancing.
There is no harm in check out other options. You may be able to find a better interest rate that doesn’t come with an early payment penalty. This would enable you to save money on the interest of the loan, and still pay it off in less time with no penalties.
8. Go Paperless
Some lenders offer a discount on your interest rate if you set up paperless statements or sign up for automated payments.
It saves the bank time and energy if they don’t have to pay someone to mail paper statements. It also saves them the headache of having to chase you for your payments.
Some lenders pass these savings along to the customer in the form of a discount on the interest rate. Check with your lender to see if this applies to your loan.
Every 0.25% off the interest rate saves you money that can be going toward the principle.
9. Don’t Take on Any Additional Debt
If there is any way at all to avoid accruing more debt while you are trying to pay off this loan, do it. This tip is difficult for most people because typically debt is not an optional decision.
That said if you can put off purchases of other big ticket items for a year or two, try to wait. Taking on more debt will spread your finances thin and make those extra payments on the car loan seem like less of a good idea.
Don’t upgrade to a more expensive apartment. Don’t take out another installment loan to buy that dream RV.
10. Cut Your Unnecessary Spending Back
Do you eat out for lunch every day at work? Do you have so many cable channels that you could never watch all of them?
There are a million little ways to reduce the money that is going out the door each month. Take a serious look at your budget and decide where you can trim the fat.
Maybe you start carpooling to work or stop window shopping in order to curb impulse buys.
It’s not hard to resist the temptation to spend unnecessarily when you can see the money going to something more important. Prioritize paying off your car loan in the shortest amount of time possible, and you will be able to do it.
Commit To the Plan
Whichever of these tips and tricks seems doable for your finances and lifestyle should get implemented right away. Maybe it’s a combo of two or three tricks that will help you save in the long-run.
Whatever plan you come up with to address the issue of your looming car loan, start today and stick with it.
Commitment to the plan is half the battle. You have the means and methods to reduce the money you spend on the car loan over the life of the loan. Can you commit to the plan?
It Feels Good to Hold the Title to Your Own Car
The bottom line is that paying off your debt faster will save you money.
Imagine what you could do with your extra money. You can save for retirement, make home improvements, pay off other debts or splurge on all the luxuries you skipped to prioritize repaying your loan. You could also use the money to pay off higher cost loans like payday loans online and payday loans no credit check.
There are lots of benefits to paying off your loans early, but one of the biggest is less stress and less risk. You can be part of the half of adult Americans that don’t have a car loan.
Did this help you learn how to payoff a car loan faster? Looking for more information on alternatives to traditional auto loans?
Click here to learn the difference between auto loans and personal loans. Here are some other articles you might find helpful:
Loans for the unemployed – do they exist and how to get one
Your guide to quick loans no credit check
Payday loan review – which payday loans are best?
Exotic car loans – how to get a no credit check loan for exotic cars