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How to pay off a car loan faster Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content. This allows you to conduct your own research and compare information at no cost and help you make informed financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website come from companies that pay us. This compensation could affect how and when products are listed on this site, including such things as the order in which they be listed within the categories of listing and other categories, unless prohibited by law for our mortgage or home equity products, as well as other home lending products. This compensation, however, does not influence the content we publish or the reviews that you see on this site. We do not include the universe of companies or financial offerings that could be open to you.
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4 min read Published 17 August 2022
Writer: Kellye Guinan. Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finances. She is also a full-time worker at her local library, where she assists people in her community get information on financial literacy, among other subjects.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances through providing precise, well-researched and well-written data that break otherwise complex subjects into digestible pieces.
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If your lender does not charge a prepayment penalty, paying off your faster is an excellent method to save. It will result in less interest — and when you’re finished, you’ll have an extra few hundred dollars to spend every month. But getting there can be difficult. There are a few tactics you can use to pay your loan off quicker. But, even when you are able to, it could make you in a much worse financial situation if not conscious of how you approach your finances. 6 ways to pay off your car loan faster There’s no specific way to pay back your vehicle loan prior to the timetable. In reality, it is beneficial to alter your strategy. Once you have an idea of what you want to do, you could benefit from a variety of ways to pay off your car loan faster. 1. Refinancing with a new lender could be a simple option to pay off your loan quicker. If you decide to take a shorter loan term, you may be able to keep the same monthly installment given that you get lower interest rates. If you don’t pay extra or increase your monthly payments in the first place, you’ll finish your car loan quicker. 2. Set up biweekly payments. Although it might seem like a lot, paying twice a month rather than one will get you closer to the finish line. It will also help reduce the cost of . It’s because interest will have less time to accrue before you make an installment — and because you will consistently lower the total loan balance. It helps move you toward the date of your early payment without substantially increasing the amount you contribute to your loan each month. 3. Round your payments up to the nearest hundred . Similarly in rounding up your monthly payments, it will result in a minor change from month to month, but will have a significant impact in the overall. If you round up your payments to the nearest hundred, or at least the nearest total number, you can gradually reduce the amount of principal on your car loan. Also, you will be ahead of your schedule, which will keep you ahead of interest and make it easier to get a quicker payment. 4. Get rid of unnecessary add-ons If you like gaps insurance as well as an extended warranty or a service contract to your loan make contact with your provider and ask them to cancel these. You will receive a prorated refund for the remainder , and also reduce the amount you pay each month. However, instead of putting that money in your account, apply it to the loan. So, you’ll owe less overall and will benefit from the lump sum. 5. Make a large additional payment Tax returns, bonuses and other large lumps of cash can go to your auto loan. Any time you can reduce your principal by a few thousand dollars is worth it. As with rounding your payments, and paying biweekly this will stop interest from accumulating. As your loan balance decreases and your monthly payment increases, more will go toward principal, which can lead to the early payment. 6. Make sure you pay each month, even you’re ahead of your schedule, you should still pay your loan every month. This prevents interest from rising — which means more of your principal is paid, further reducing the amount of interest you have to pay. In addition, making regular payments even when they aren’t required can result in paying off your car loan in a timely manner. If you don’t want to make a payment on your car loan in time. The ability to pay off your car loan earlier means you’ll have an extra few hundred dollars that you can put in your account each month. However, in certain situations it could harm your financial situation more than it helps — so it may not always be the best move. Beware of paying your loan early If there is a penalty for early payment. A essentially punishes you for not making enough payments or fully paying off your loan early. The lender is trying to compensate with the amount of interest that you could have incurred when you had adhered to the schedule. If there’s a prepayment penalty, ensure it doesn’t cost more than you would otherwise pay in interest. The loan uses precomputed interest . front-loads the interest you pay each year to ensure you pay for the month that accounts for a higher percentage than the month following. When you make payments on your loan early, you aren’t going to substantially reduce the cost of your car loan. In this situation it’s better to stick to the loan timetable. If you don’t have a lot of debt. While it may sound counterintuitive the credit score you have is calculated on the types of debt you have and the duration the accounts. Since car loans are long-term loans, making consistent payments for years can help maintain your credit score. However, paying off your loan can lower the credit utilization ratio, which represents approximately thirty percent of credit scoring. If you have debts that aren’t paid off and a high debt-to-income ratio (DTI) and you want to get rid of one debt will help boost your score. Ways to lower the cost of your car loan refinancing your loan There are two options to reduce the cost of your monthly installments by deferring them or requesting a loan modification. Deferment allows you to skip payments if you’re facing financial difficulties in the short term. Loan providers may give you up to three months of deferment to help you out. However, deferment will only move the payments to the finalization of your loan and you’ll still have to cover them in the future. You will also be responsible for interest, so in the end it will cost more. The lenders may not be as willing to modify your loan, but it doesn’t hurt to ask. Much like refinancing, will change the terms of your loan by either extending the duration or lowering your rate. If you are able to negotiate a modification to your loan and reduce your monthly payments without needing to sign a new loan with a new lender. Next steps It may not always be the most beneficial option to make the payment on your car loan in advance. If you’d face prepayment penalties or a risk of a hit to your credit score it won’t be worth the cost. But if you want to get out of the burden of car loans, getting rid of them is among the fastest methods to free up your budget. Refinancing — or simply making extra payments — are the best ways to pay off your car loan quicker. Even if it’s only one extra dollar a month, you’ll be able to decrease your debt and take a few months off of your loan. Find out more
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Written by Personal and business finance Contributor
Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal finance. She also works full-time as a librarian at the local library where she helps her community access information about financial literacy, as well as other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are enthusiastic about helping readers gain the confidence to take control of their finances by providing concise, well-researched, and well-studied data that breaks complicated topics into bite-sized pieces.
Auto loans editor
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