The faster you pay off your car loan the less you’ll pay in interest — which can mean less stress, better credit and more money in your pocket! Tackling your vehicle debt quickly will take some savvy spending on your part, but it’s totally doable.
We’ve put together a list of nine tips to get your car payment plan in the fast lane.
- Make sure there’s no penalty
- Increase your monthly payments
- Make bi-weekly payments
- Make an extra payment
- Don’t skip payments
- Refinance your loan
- Earn extra income
- Redirect your savings
Make sure there’s no penalty
Before you start throwing all your extra cash at your car loan, find out if your car financing agreement allows for early repayment. Call your lender and ask if you’ll be charged a penalty for paying off your car loan early. If the answer is yes, you might be better off sticking with the original term of the loan. If the answer is no, keep reading!
Increase your monthly payments
Putting more money towards your monthly payment is a simple way to pay off your loan faster. This is a great strategy if you have space in your budget for a higher payment, but don’t overextend yourself in the name of closing out your car loan. If you have some newfound financial wiggle-room — say, from a raise at work or an inheritance — put that extra cash towards your monthly payment.
If you’re not sure how much you should increase your monthly car loan payment consider rounding up. Not only is the number easier to remember, it will take a serious bite out of your debt. If you pay $275 a month for your car try rounding up to $300. That $25 increase might not seem like much, but you will have paid an extra $300 towards your loan and shaved a month off your term by the end of the year.
Make bi-weekly payments
Monthly, semi-monthly, bi-weekly or weekly — lenders will give you a bunch of different payment options when negotiating the terms of your car loan. Instead of signing up for monthly payments, like you do with most other bills, go for bi-weekly payments. You end up paying the same amount each month, but you’ll make the equivalent of 13 payments instead of 12 each year without really noticing.
Make an extra payment
Throwing a little extra cash at your balance once a year can shave a few months off the term of your car loan. This is a good technique if you can’t commit to larger monthly payments but do get an annual bonus from work or a yearly tax refund. Put down whatever you can afford, but aiming to pay off an extra month each year is a good place to start.
Don’t skip payments
This is probably an obvious one, but it’s not a good idea to skip monthly car loan payments if you’re trying to pay it down quickly. Some lenders will give borrowers the option of skipping a payment or two each year as a buffer for when money is tight. While this financial olive branch might offer short-term stress relief, it only extends the term of your loan because those missed payments will be tacked on to the end of your loan.
Refinance your loan
If you’ve been working on improving your credit, you should consider refinancing your car loan. If your credit score has gotten better since you originally financed your car you could be eligible for a lower interest rate from your lender. This will lower your monthly payments, save you money on interest and help you pay off your loan faster.
Earn extra income
Everyone seems to have a side hustle these days, but if driving an Uber or working at a restaurant on the weekends aren’t appealing there are other ways you can make a little extra cash. Do you have any furniture, appliances, books or clothes you want to get rid of? Post them online or stop by a consignment store instead of dropping them off at the thrift store.
Redirect your savings
If you’ve sold everything you can sell, try looking for savings in other areas of your life and redirecting that extra money towards your car loan. Download a coupon app for grocery shopping, start making your own coffee for work and try staying in on date nights. Small changes add up!
With a solid plan and a little motivation, you can be debt-free in no time. At Birchwood Credit our knowledgeable advisors can answer any car loan questions you have. Get in touch with us today.