How to Pay Off Your Car Loan More Quickly
A car loan makes it easy and convenient for most people to purchase a car. After all, few people have the financial resources to pay for a car in cash, and those who do may find it more cost-effective to invest that money rather than to use it to make a large purchase. However, a car loan payment may account for several hundred dollars in your monthly budget, and you may be looking for a great way to eliminate this debt from your life. When you want to know the best way to pay off an auto loan early, consider how these helpful tips can point you in the right direction.
Refinance Your High Interest Rate Loan
To get started paying off your car loan early, take a closer look at your current loan’s interest rate. Then, shop around with different lenders to see if a more affordable interest rate is available. Interest charges can play a major role in how challenging it is to pay off a car loan. If you can refinance your high interest rate loan to a loan with a more affordable rate, each monthly payment you make may more effectively reduce your principal balance. Because your goal is to pay the loan off early, try not to extend the term length when you refinance your loan.
Pay More Than the Minimum Monthly Payment
Regardless of whether you find it beneficial to refinance your car loan or not, you should consider the benefits of paying more than the minimum monthly payment. There are a few ways to accomplish this with ease. For example, you could simply round up your car payment amount to the next closest even number. For example, a $246 payment may become a $250 payment. Another idea is to make weekly payments instead of monthly payments. When you make weekly payments, you essentially will be paying more than necessary each year because there are 26 weeks in a year. You can also simply pay an extra lump sum amount toward your principal balance each month if you can afford to do so.
Use Windfalls and Refunds to Make a Bigger Dent in Your Loan Balance
Perhaps the best way to make a very large dent in your principal balance is to use your windfalls and refunds for debt reduction. For example, when you receive your annual tax refund from the IRS, allocate these funds toward paying down your car loan. You can also use birthday or holiday gift money, work bonuses and other windfalls to pay down the balance as well.
It is wonderful to drive around town in a car that is owned free and clear, and you may be dreaming about the day when you can enjoy this benefit yourself. While you could continue to make minimum monthly payments and pay the loan off by the due date, you could also follow these tips to pay your loan balance off more quickly.