If you are like one of the millions with a large car payment, you may be looking for helpful tips on paying off the car loan quickly. Buying a new car can be expensive, and a lot of people are forced to take out a car loan in order to be able to afford the vehicles. However, these car loans carry a heavy interest, which could even be in the double digits depending on your credit score. Due to the interest rates, you will always end up paying more for the car, especially if you have the vehicle loan for a long time. Because of this, many people look for ways to pay off their car loan quickly.
You may be surprised to hear that roughly 80% of new cars and 40% of used cars are purchased with auto loans. Furthermore, average amount financed for new cars increased to $41,445 in 2022, up 17% from 2020. The higher the interest rate, the higher the monthly payments will be.
By paying off your car loan quicker than the loan term length, you will have more money freed up within your budget. Thankfully, there are a number of strategies that individuals may implement in order to pay off their car loans quickly. By making extra payments and refinancing, you are able to save thousands of dollars in the long run. Further advantages of paying off the car early is saving money on interest. In addition to saving money on interest, the money saved could be applied to other financial goals like your retirement or even a down payment on a house. Finally, you will have a lower debt-to-income (DTI) ratio, which helps individuals qualify for mortgages or other forms of credit easily.
- Sign Up for Automatic Payments
Many companies offer interest rate discounts if the consumer signs up for automatic payments. Many discounts could reduce the interest rate by 0.25%, which may seem small, but could offer huge savings over time. With more of your monthly payments going towards the loan principal as opposed to the interest, consumers will save money.
- Unexpected Influxes of Cash
If you work in an industry that offers bonuses or cash based incentives, it helps to apply that amount right towards your car payment. Adding a lump-sum payment could help pay off a large percentage of debt and, in turn, save more money over time.
- Switch to biweekly payments
This method is commonly applied towards a mortgage payment, and is just as effective for car payments as well. This method splits the current payment amount in two, and pay that amount every two weeks. This strategy basically forces consumers to pay one extra payment each year when implementing this strategy.
- Round Up Car Payments
Another tip to try is to round up the monthly payment by $25 or even $50 can make a major difference. For example, a car loan of $40,000 at 8.00% APR and a six-year term, your monthly payment would be $701.33, by just increasing the amount by $25, the loan will be paid off three months sooner and will save $484 in interest.
- Refinance the Car Loan
Car loans with a high interest rate could be refinanced in order to get a lower interest rate. This only applies to individuals who have a better credit score than when they first applied for the loan.
While it is typically a great idea to pay off the automobile loan quickly, there are a few instances that it is not the best idea to do so. In particular, if you have a prepayment penalty associated with the loan, it will reduce the value of paying off the loan. Furthermore, if you have other debt with even higher interest rates, it is better to pay these off first as it will save you more money.
Overall, paying off an automobile loan early offers a multitude of benefits for consumers. These benefits could include paying less over a longer period of time or even having more money to play with each month for financial goals. There are a number of strategies to implement to pay off the loan early, but the five most common are as follows: refinancing, rounding up the monthly payment, switching to biweekly payments, applying large influxes of cash, and even signing up for automatic payments.
If you are looking for a company to handle the process of moving a new vehicle, SAC is more than capable of walking you through this process. Simply contact our company to get started with a specialized transport representative.