If you’re looking to save money on your car loan, you may be wondering how to pay off your car loan early. Here are a few tips to help you get started.
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If you have a car loan, you’re not alone. In fact, according to Experian, the average loan amount for a new car was $32,187 in the fourth quarter of 2019, and the average loan amount for a used car was $19,029.
But just because car loans are common doesn’t mean they’re ideal. If you want to get out of debt as quickly as possible, you may want to pay off your car loan early.
Paying off your car loan early can save you money in interest and help get you out of debt faster. But before you make extra payments on your loan, make sure there aren’t any prepayment penalties—a fee charged for paying off your loan early.
Here’s how to pay off your car loan early so that you can save money and get out of debt faster.
The Benefits of Paying Off Your Car Loan Early
Save on interest
One of the biggest benefits of paying off your car loan early is that you save on interest. The longer you take to repay your loan, the more interest you will pay, and this can add up to a significant amount of money over time.
Paying off your car loan early also means that you will own your vehicle outright sooner. This can give you greater freedom and flexibility when it comes to selling or trading in your vehicle, as there will be no outstanding loan to pay off.
Improve your credit score
There are a few things that will help you boost your credit score. One of those things is paying off your car loan early. By doing so, you’ll improve your credit score by a few points. If you keep up the good work and pay off other debts, such as student loans and credit cards, you’ll see your score rise even more.
Get peace of mind
If you’re like most people, your car is one of your biggest financial investments. It’s not only a huge purchase, but it’s also a long-term investment that you’ll be making payments on for years to come.
Most car loans are for five years or more, which means you could be making payments for a significant chunk of your life. And if you have other debt, like a mortgage or student loans, those payments can add up quickly.
Paying off your car loan early can provide some much-needed relief from all of that debt. It can also give you peace of mind knowing that one less payment is hanging over your head each month. And if you own your car outright, you’ll have one less bill to worry about if unexpected expenses come up.
How to Pay Off Your Car Loan Early
Paying off your car loan early can save you money in interest and help improve your credit score. It may seem like a daunting task, but with a little planning, you can make it happen. Here’s how to pay off your car loan early.
Make biweekly payments
One simple way to pay off your car loan early is to make biweekly payments instead of monthly payments. By making two payments each month, you’ll end up making an extra payment each year. That extra payment can help you pay off your loan faster and save you money in interest.
Refinance your loan
One way to pay off your car loan early is to refinance it. This simply means taking out a new loan with different terms in order to pay off the old one. When you refinance, you can choose a shorter loan term, which will result in higher monthly payments but will save you money in interest in the long run. You can also choose a lower interest rate, which will lower your monthly payments but may cost you more in interest over the life of the loan.
Make extra payments
When you make your regular car loan payment, a portion of that payment goes to cover the interest on the loan and the rest goes toward paying down the principal, or the original amount you borrowed.
If you want to pay off your loan early, you need to make extra payments toward the principal. When you do this, less of your regular payment will go toward interest, and more will go toward paying down the principal. This will help you pay off your loan faster.
To make an extra payment, simply send in a check for the amount you want to apply to the principal. Be sure to write “principal only” on the memo line of the check so your lender knows how to apply the payment. You can also ask your lender to set up automatic payments from your checking account so you don’t have to remember to make extra payments each month.
If you make extra payments consistently, you will be able to pay off your car loan early and save money on interest charges.
The best way to pay off your car loan early is to make extra payments toward the principal balance. You can do this by setting up a bi-weekly payment schedule or making lump sum payments whenever you have extra money. The key is to keep making these extra payments until the loan is paid off in full. Doing so will save you money in interest and help you get out of debt faster.