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4 minutes read. Published 17 August 2022

Written 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 finances. She is also a full-time librarian at the local library, where she assists people in her community get 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 committed to helping readers gain the confidence to control their finances by providing concise, well-researched, and clear facts that break down complex topics into manageable bites.

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As long as your lender does not charge a prepayment penalty and you pay off your loan faster, it is a great option to save money. This means you pay less interest and, once you’re done, you’ll have an extra few hundred dollars in your budget each month. However, getting there is challenging. There are several strategies you can utilize to pay your loan off faster. Even when you are able to do it, it may put you in a worse financial situation if not aware of your strategy. 6 ways to pay off your car loan faster There is no one path to paying off your car loan ahead of schedule. In reality, it is sensible to change your approach. Once you’ve got an idea of what you want to do, you can make use of a couple of methods to get rid of your car loan more quickly. 1. Refinancing your loan with a different lender can be an easy way to pay off your loan faster. If you decide to take an a shorter loan term, you may be able to maintain the same monthly payments given that you get lower interest rates. Even if you don’t make extra payments or round your payments up to make them more frequent, you’ll be able to be able to pay off your car loan more quickly. 2. Set up biweekly payments. Although it may seem like a lot, paying twice a month rather than once will get you closer to the finish line. It will also help reduce the cost of . This is because interest will take less time to accrue before you make a payment — and because you’ll always lower your total loan balance. It will help you get closer to an earlier payoff date, without significantly increasing the amount you put toward your loan each month. 3. Round your payments up to the nearest 100. Similar to this, rounding up your payments will result in a minor change on the month-to-month basis, but it will make a huge difference over the long run. If you round up your payments to the nearest hundred or at the very least, the closest whole number, you will gradually reduce the amount of principal on your vehicle loan. Additionally, you’ll be ahead of your schedule that will help keep you ahead of interest rates and allow you to make a smooth transition into a faster payoff. 4. Avoid unnecessary extras If you want to opt out of gaps insurance, an extended warranty or a service contract for your loan make contact with your provider and request that they cancel these. You will be able to receive a prorated reimbursement for the remaining amount, while also lowering your monthly payment. However, instead of putting that money in your account use it towards the loan. This way, you’ll owe less in total and get the benefit of a lump-sum payment. 5. Pay a larger amount of additional payments Bonuses, tax returns and other large lumps of cash could go towards your vehicle loan. Any time you can reduce your principal by a few thousand dollars is likely worthwhile. Similar to rounding your monthly payments and paying biweekly to avoid interest from adding up. As your loan balance shrinks, more of your payment will be used to pay for principal, leading to an early payoff. 6. Each month you should pay your loan even you’re ahead of schedule, you should still pay your loan each month. This prevents the interest from accruing — which means more money goes towards principal which will reduce the interest you pay. In addition, making regular payments even that aren’t needed could result in the need to pay on your vehicle loan in a timely manner. If you don’t want to pay off your car loan in time. The ability to pay off your car loan early can mean a few hundred dollars that you can put in your bank every month. But in some cases it could harm your financial position more than you help thus it might not be the most beneficial option. Avoid paying your loan off early when there is a penalty for prepayment. This is essentially a punishment for not paying your loan in full or for paying off your loan in advance. It is the lender’s attempt to compensate for the interest you would have paid when you had adhered to the schedule. If there’s a prepayment penalty, make sure it doesn’t cost more than you would otherwise be paying in interest. Your loan makes use of pre-calculated interest . front-loads the interest you pay every year, so that the first month is accounted for a greater share than the last month. If you are able to take care to pay off your loan in advance, you will not drastically reduce costs of your car loan. In this case, it may be better to adhere to the loan timetable. There isn’t a lot of debt. Although it might seem odd but your credit score is calculated based on the kind of debt you’ve accumulated and the duration the accounts. Because car loans are long-term loans, making consistent payments for many years will to keep your credit score up. However, the process of paying off your loan could lower your credit utilization ratio, which represents around 30 percent of your credit score. If you are in debt with other creditors and have high debt-to-income ratio (DTI) eliminating one debt will help boost your score. Strategies to reduce the cost of your car loan from refinancing your loan and renegotiating your loan, there are two ways to lower your monthly payment either defer them or ask for the loan modification. Deferment permits you to avoid payments if you’re facing financial difficulties in the short term. Loan providers may give you one to three months of deferment to help you out. However, deferment will only move the payments until the finalization of your loan, so you will still have to cover them eventually. Also, you’ll be accountable for interest costs, which means that at the end of the day, it is more expensive. Lenders may be less willing to alter the terms of your loan, but it doesn’t hurt to ask. Like refinancing, you can change the conditions of your loan by either extending your term or lowering your interest rate. If you are able to get a modification to your loan or loan term, you can reduce your monthly payments without needing to sign a new loan with another lender. The next steps necessarily be the best option to make the payment on your car loan early. If you’re facing penalties for prepayment or a risk of a impact on your credit score The savings will not be worth the cost. If you’re looking to pay off your debt, eliminating car payments is among the most efficient ways to make room in your budget. Refinancing or paying extra monthly payments is the most effective way to pay off your car loan faster. Even if you only pay an extra few dollars per month, you will lower your debt, and possibly reduce a few months from your loan. Find out more

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Written by Personal and business finance Contributor

Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal finance. She’s also a full-time worker at her local library in which she helps the community get information about financial literacy, among 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 confidence to take control of their finances with precise, well-researched and informative facts that break down complicated subjects into digestible pieces.

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