A car loan is not something most people like to have. However, over 40 percent of Americans have a monthly auto loan payment according to GoBankingRates. And, many people pay more than $500 a month for their car payment. That can be taxing to most budgets. Thankfully, there are options to pay off a car loan faster. These are ten proven ways to eliminate it quicker.
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Make Bi-Weekly Payments
Bi-weekly payments are a simple way to make an extra payment on your loan annually. Making a payment every two weeks works out to 26 payments per year.
This can save you over a thousand dollars in interest over the life of the loan.
Pay Every Month
This may seem like a no-brainer. However, even if you’re ahead on payments you want to continue to pay every month.
This keeps more interest from adding onto the principal. That can greatly increase the speed at which you can pay off the loan.
Round Up Your Payments
Just because your car payment is a certain amount doesn’t mean that’s all you can or should pay.
Consider adding $25 or $50 to each payment, or round it to the nearest hundred dollars. Doing so attacks the principal, helping save you more money.
Review Add-ons
Loan servicers love to offer add-ons to car loans. These range from gap insurance to an extended warranty.
If you don’t feel you need them, contact the lender to cancel them. Instead of pocketing the savings, throw it at your loan.
Earn Extra Money
Earning extra money is a fantastic way to eliminate any debt. A car loan is no different.
Find a side hustle that fits your skill set and schedule. Then, devote the earnings to your loan.
Rent It Out
You can earn passive income and pay off your car loan when you rent out your vehicle. Sites like Turo and HyreCar let you rent your car for cash.
You can earn $700 or more with some makes and models. If it’s fine with your insurance provider, you could make money and eliminate your loan.
Sign Up For Auto Payments
Lenders know life gets busy. Many offer a rate reduction if you sign up for auto payments.
The reduction may only be 0.25 or 0.50 percent, but every little bit helps.
Apply Windfalls to Your Loan
Did you receive a large tax refund this year? What about a bonus at work?
Apply part or all of the cash to your loan. It’s not fun, but it can save you thousands in interest.
Revisit Your Budget
When was the last time you analyzed your budget. If you’re struggling to make ends meet and have an expensive monthly car payment, it might be time to review it.
Identify areas where you’re overspending and determine if the expenses are necessary. See if you have any subscriptions you’re no longer using.
Claw back potential savings and apply an amount you’re comfortable with to your monthly payment.
Make A Large Down Payment
The more you borrow automatically results in a higher monthly payment. If you’re in the market for a new to you car, identify ways you can make a more sizable down payment.
It may hurt in the short-term, but it will result in a reduced monthly obligation. Furthermore, you may also receive a lower interest rate as lenders will often view you as less of a risk.
Should You Pay Your Car Loan Off Early?
Paying off your car loan early is incredibly freeing. No longer do you need to make large payments, and you can use the funds to achieve other financial goals.
However, every situation is different. If the car payment is restricting your budget, look at what eliminating it will do for you.
When Should You Not Pay Off Your Car Loan Early?
It doesn’t always pay to eliminate your car loan. If there’s a prepayment penalty, it may cost you more than it’s worth to pay it off early.
Furthermore, if you don’t have a lot of debt, paying it off early may negatively impact your credit.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
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