How to Pay Off a Car Loan Early

Here are a few tips on how to pay off your car loan early and save money on interest.

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Assess your budget

One of the best things you can do to save money is to pay off your car loan early. By doing this, you’ll save on interest and be debt-free sooner. But how do you know if you can afford to make extra payments? The first step is to assess your budget and see where you can cut back in other areas in order to make early payments on your car loan.

Determine how much extra you can afford to pay each month

If you’re focused on paying off your car loan as quickly as possible, you’ll need to take a close look at your budget to see how much extra you can afford to pay each month. In addition to your regular monthly payment, try to come up with an extra amount that you can comfortably afford to put towards your loan.

You may need to make some sacrifices in order to free up the extra cash, but it will be worth it in the long run. If you can swing an extra $100 per month, for example, you’ll be able to pay off your loan almost four years sooner and save over $5,000 in interest.

If you have any other debts that you’re trying to pay off, such as a mortgage or student loans, you may want to focus on those first before putting extra towards your car loan. However, if you have room in your budget and you’re eager to get rid of your car payment, there’s no reason why you can’t make additional payments each month.

Consider making bi-weekly payments

Bi-weekly payments are half of a monthly payment, but you make the payment every two weeks instead of once a month. This may not sound like a big deal, but by the end of the year, you will have made 26 half payments, or the equivalent of 13 monthly payments.

One thing to consider with bi-weekly payments is that you need to have the money available every two weeks. If you are paid monthly, you may need to plan ahead and set some money aside so that you can make your bi-weekly payment. Another thing to consider is that some lenders charge a fee for processing bi-weekly payments, so be sure to factor that in when you are deciding if this is the best option for you.

Refinance your car loan

If you’re looking to pay off your car loan early, one option is to refinance your loan. This means taking out a new loan with a lower interest rate and using the extra money to pay off your old loan. This can save you money in the long run, but it’s important to make sure that you’re not paying more in fees than you’re saving in interest.

Shop around for a lower interest rate

One of the best ways to pay off a car loan early is to refinance the loan at a lower interest rate. By lowering your monthly payments, you can free up some extra cash to put towards your loan each month. You can also shorten the length of your loan, which will save you money in the long run.

If you have good credit, you should be able to find a lower interest rate by shopping around. Start by checking with your current lender to see if they can offer you a lower rate. If not, look for other lenders who specialize in car loans. You can compare rates online or by going to your local bank or credit union.

Be sure to compare more than just the interest rate when shopping for a new loan. You should also look at the fees associated with the loan and the length of the repayment period. A shorter repayment period will save you money in interest, but it will also mean higher monthly payments. Make sure you can afford the new payment before moving forward with a refinance.

Extend the term of your loan

One way to make your monthly car loan payments more affordable is to extend the term of your loan. This will lower your monthly payments, but it will also increase the amount of interest you pay over the life of the loan. If you currently have a four-year car loan, for example, you could extend it to a five- or six-year loan.

Make a lump-sum payment

One way to pay off your car loan early is to make a lump-sum payment. This means making an extra payment on your loan above your required monthly payment. For example, if your required monthly payment is $500, you could make an extra payment of $1,000. This extra payment would go towards the principal of your loan, which would reduce the amount of interest you would pay over the life of the loan.

Use a windfall to make a lump-sum payment

If you get a tax refund, bonus at work, or any other source of extra money, you can use it to make a lump-sum payment on your car loan.

This will reduce the balance of your loan, and since you’re paying more than the minimum payment, you’ll pay less in interest charges over time. The biggest benefit of making a lump-sum payment is that it saves you money in the long run.

To make a lump-sum payment, simply send a check or money order to your lender with a note instructing them to apply the payment to your principal balance. You can also usually make an online payment if your lender offers this option.

Sell your car

If you have equity in your car, you may be able to sell it and pay off the loan. You can use the extra money to make a lump-sum payment on the loan. This will help reduce the amount of interest you pay over the life of the loan.