How To Pay Off Your Car Loan Faster: Tips and Strategy (2022) - MarketWatch

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Your car payment is likely one of your biggest monthly expenses. Figuring out how to pay off your car loan faster can help you save a significant amount of money even if you have one of the best auto loan rates. We at the Home Media reviews team will give you strategies for paying your auto loan off early and explain when it may or may not be right for your financial situation.
The first step to paying off your car loan early is figuring out whether it’s a good idea to do so. While getting rid of your car payment seems like a major advantage, it may not always be the best financial decision.
Before you try to pay off your car loan early, see if doing it would actually benefit you. The additional savings may not be worth the adjustments you’d need to make to your budget.
One of the easiest ways to find out how much you can save is to use a car loan calculator. These tools allow you to input different scenarios, such as making higher monthly payments, and see how they would affect your loan. You can even see what your payments would be if you refinanced your car loan at a different interest rate.
There are many situations in which it makes sense to pay off your car loan faster than your contract specifies. Here are some of the most common:
Faster repayment of your auto loan isn’t always the best move. Here are a few situations in which it may not make sense to pay off your car loan faster:
If you’ve decided that going for an early loan payoff makes sense, you have several ways of doing so. Your best option depends on your personal finance situation and money habits.
Refinance auto loans offer you the opportunity to get a new interest rate and new loan term. If you can afford higher payments, you may be able to secure a refinancing loan with a lower interest rate and shorter term.
However, a refinance loan is just a new car loan for a vehicle you already own. It may come with the same fees and additional costs as other loans, so include these costs in your calculations.
At first glance, making half payments toward your car loan every two weeks might seem like a net neutral. However, this will result in 26 payments over the course of a year instead of 12. That means you’ll make an additional month’s payment each year.
If you come into extra money from a job bonus, tax return or other source of additional income, making a large lump-sum payment toward your auto loan can help you pay it off faster. That’s especially true if your lender counts additional payments beyond the required debt payment toward the principal. This will also reduce the amount of interest you get charged going forward.
Any additional amount you pay toward your car loan will help you finish paying it off early. Simply rounding your payment up to the next $50 or $100 increment can go a long way. For example, if your car loan payment is $365 per month and you pay $400 per month, you will have paid an additional $420 toward your loan after a year — more than a month’s payment.
You may be paying for things you don’t need with your car loan. Dealerships typically roll things like gap insurance and car warranties into purchase loans. In some cases, you can get a partial refund by ending this coverage, which lowers your monthly payment. If you continue to make the same payment you were making before, you’ll pay your auto loan off faster.
For many people, ending car payments can be a game-changing financial move. When it comes to how to pay off your car loan faster, you have more than a few options. Whichever way you choose to go about it, first make sure you’re in the right position to benefit from paying your auto loan’s remaining balance off early.
To help you decide whether or not it makes sense to wrap up your auto loan early, we’ve created a checklist. If you check most or all of the items on this list, it’s worth looking into how you can pay off your car loan faster:
A refinance auto loan may be a great way for you to pay off your car loan faster — as long as you secure affordable rates with a reputable lender. Sourcing quotes from providers allows you to compare them and see who offers the best refinancing rates for you. We recommend starting your search with one of the following providers from our list of the best refinance auto loan companies.
In our review of the best auto loan providers, Auto Approve was named Top Choice for Refinancing. As a refinance-only lender, Auto Approve has competitive rates for borrowers who want to get new loans to pay off their car loans faster. The company also has a very easy online application process and doesn’t charge prepayment penalties.
Keep reading: Auto Approve review
For those looking for refinance loans, the marketplace model at myAutoloan is worth checking out. Rather than having borrowers search for lenders, the site allows borrowers to submit their information and lenders to come to them. This makes comparing offers simple and efficient.
In addition, myAutoloan is open to borrowers with credit scores as low as 575. That means people with less-than-stellar credit history may also find refinance auto loans.
Keep reading: myAutoloan review
There are several ways to pay off a car loan early, and the best way to do it depends on your situation. Some of the most common ways include making larger payments each month, making a large bulk payment when you can and refinancing your loan to a shorter term or lower interest rate.
No, your car payment will not go down if you pay extra in most cases. Typically, your car payment will stay the same, but the additional payment will be credited toward your loan balance. Depending on how much extra you pay, this could mean that you pay off your car loan faster.
Paying half of your monthly car payment twice a month instead of a full payment each month can help you pay off your car loan early. That’s because when you make payments on a biweekly basis, you make 26 payments that add up to 13 monthly payments instead of 12.
Whether or not any extra you pay on a car loan goes to the principal depends on your lender and your loan contract. Some lenders may automatically credit additional payments toward your principal, while others may only apply that payment toward interest. Your lending agreement should specify which. Also, it may be a good idea to state clearly in writing that an additional payment is to be paid toward the principal only.
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.
Here are the factors our ratings take into account:
*Data accurate at time of publication.
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