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4 minutes read. Published 17 August 2022

Authored by Kellye Guinan Written by Personal and Business Finance contributor

Kellye Guinan is a freelance editor and writer with more than five years ‘ experience within personal financial matters. She’s also a full-time employee at her local library where she helps the community gain access to information on financial literacy, in addition to other topics.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances through providing clear, well-researched information that breaks down complex subjects into digestible pieces.

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Provided your lender doesn’t charge a prepayment penalty and you pay off your loan faster, it is a fantastic option to save money. It means less interest paid and, once you’re done, you’ll have an extra few hundred dollars in your budget every month. But getting there can be difficult. There are some strategies you can use to pay your loan off faster. However, even if you can however, it can make you in a much worse financial situation if you’re not conscious of how you approach your finances. 6 strategies to get rid of your car loan faster There’s no one path to paying off your car loan ahead of time. In fact, it is beneficial to alter your approach. When you’ve got an idea of how, you can take advantage of a few strategies to make payments on your vehicle loan quicker. 1. Refinance with a new lender is a great method of paying off your loan more quickly. If you choose an a shorter loan duration, you might be able to maintain the same monthly payments given that you get lower interest rates. Even if you do not make additional payments or round up your payments, you will naturally finish your car loan more quickly. 2. Set up biweekly payments. Although it may seem small but paying twice per month rather than just once will get you closer to the finish line quicker. This will also save on . It’s because interest will have less time to accumulate before you can make a payment as well as because you’ll always lower your overall loan balance. It helps move you toward an earlier payoff date, without significantly increasing the amount you contribute to your loan every month. 3. Make your payments round to the nearest hundred Similarly, rounding up your payments will have a small impact month-to-month but a substantial change over the long run. If you round up your payments to the nearest 100, or at the very least, the closest total number, you can slowly reduce the principal of your vehicle loan. Additionally, you’ll be ahead of your schedule and stay ahead of interest and ease you into a faster payoff. 4. Opt out of unnecessary add-ons if you would like gaps insurance or an extended warranty, or a service agreement to your loan make contact with your provider and ask them to cancel the add-ons. You will be able to receive a prorated reimbursement for the remainder while also lowering your monthly payments. But rather than putting that refund into your pocket, apply it to your loan. So, you’ll owe less overall and benefit from the lump sum. 5. Make a large additional payment Tax returns, bonuses and other huge lumps of cash can go to your auto loan. If you can cut the principal amount by a couple hundreds of dollars, it’s worth doing. Similar to rounding your monthly payments and paying biweekly, it will prevent interest from adding up. When your loan balance decreases the more of your payments will be used to pay for the principal amount, which will result in an early payoff. 6. Each month you should pay your loan even you’re ahead of schedule however, you should still make payments on your loan each month. This prevents the interest from accruing which means that more goes toward principal, further reducing the amount of interest you have to pay. In addition, making regular payments even when they aren’t required will lead to paying off your car loan early. 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 couple hundred dollars in your bank every month. But in some cases it could harm your financial situation more than it helps — so it may not always be the best decision. Beware of paying your loan off early If there is a prepayment penalty. The penalty is basically a way to punish you for not paying your loan in full or paying the full amount of your loan in advance. The lender is trying to make up for the interest you would have incurred if you had stayed on schedule. If there’s a prepayment penalty, ensure it’s not more than you would otherwise pay in interest. Your loan uses precomputed interest . It is a way to front load the interest you have to pay each year so that the first month accounts for a greater share than the final month. When you take care to pay off your loan in advance, you will not significantly lower costs of your vehicle loan. In this scenario, it may be better to adhere to the loan schedule. There isn’t a lot of debt. While it may seem counterintuitive but your credit score is calculated on the type of debt you’ve accumulated and the duration of your accounts. Because auto loans are long-term debt that require regular payments over years can help maintain your credit score. One caveat: paying off your loan can reduce your credit utilization ratio, which accounts for around 30 percent of your credit score. If you have debts that aren’t paid off and an excessive debt-to-income ratio (DTI) and you want to get rid of one of them will improve your score. Ways to lower your monthly car payments Aside from refinancing your loan, there are two methods to cut down your monthly payment: defer them or request a loan modification. Deferment permits you to avoid the payment if you’re experiencing short-term financial hardship. The lender may provide one to three months of deferment in order to help you get through the. But deferment only moves the payments to the end of your loan and you’ll need to pay them back eventually. Additionally, you will be accountable for interest, so at the end, it is more expensive. Some lenders might not be able to modify your loan however it wouldn’t harm to inquire. Like refinancing, you can change the conditions of your loan by either extending the term or lowering your interest rate. If you are able to get a modification to your loan, you could reduce your monthly payments without having to apply with an entirely new lender. What next? It might not always be the most beneficial option to pay off your car loan in advance. If you’re facing penalties for prepayment or a possible impact on your credit score, the savings won’t be worth it. But if you want to eliminate the burden of car loans, getting rid of them is one of the quickest ways to make room in your budget. Refinancing — or just making additional payments are the best ways to pay off your vehicle loan quicker. Even if you only pay an extra few dollars per month, you’ll decrease your debt and take a few months off of your loan. Learn more

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Written by a Personal and Business finance contributor

Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finance. She’s also a full-time worker at her local library where she helps her community get information about financial literacy, among other subjects.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances through providing concise, well-researched, and well-studied information that breaks down complicated topics into bite-sized pieces.

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