Five tips to pay off your car loan fast

When you lease or buy a car, you may be making payments for anywhere from five to eight years! In that span of time, a lot can happen (like depreciation!) and having the money you’d be using for a monthly payment to put toward anything else would certainly be helpful. Learn whether you should pay off your car early and uncover tips for doing so.

Should you pay off your car loan faster?

Not always! Before you decide to put things in motion, make sure you’re aware of your current balance and APR, and make sure you understand how your lender handles prepayment and if there are any penalties.

It makes sense to pay off your car loan faster if:

You have extra cash from a work bonus or windfall to put towards the loan
Your primary goal is getting out of debt
You have a high interest rate and want to take advantage of a lower rate by refinancing

You might want to pump the brakes on early loan repayment on your car if:

You’ll be charged a steep prepayment penalty
You have other debt that’s more pressing, like a high interest credit card
It’s not financially feasible due to other expenses

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Tips for paying off your car loan early

If an early loan payoff makes financial sense, there are a few ways to go about doing so:

Make a big down payment

When you buy a car, you’re required to put money down towards the principal. This amount plus the interest rate (often determined by your credit score) determines how much you pay every month. The more you pay upfront, the less you’ll pay overtime, both towards the principal and in accrued interest. If you’ve got a tax refund or other financial windfall coming to you, this is often a great use for those funds. You may want to use an auto loan calculator to help determine what you can afford.

Split the bill

Instead of making one large payment every month, split it in half and make one payment every two weeks. By making a payment every two weeks you end up making 26 payments a year. In a normal year, you’d make 12 monthly payments, but by paying biweekly, you make 13 total monthly payments, lowering your overall balance.

Round up

Think about rounding up your car note to the nearest $50 or $100 increment. If your monthly car note is $360, consider rounding up to $400. This extra $40 a month adds up to an extra $480 a year.

Refinance

Take a look at interest rates and your credit score. If rates have gone down or if your credit score has gone up, you may be able to refinance your car loan for a better rate, or take out a new loan at a better rate and use it to pay off the old one. Before you go ahead with this, make sure the refinancing fees aren’t greater than what you’ll save on your new interest rate.

Cancel add-ons

When you purchase a new or used car, your dealer will often try to roll additional fees into your contract like an extended warranty or a specific service contract. Reach out to your lender or the dealership directly and see if you can cancel these add-ons. You may receive a credit for payments made or a partial refund.

By paying off your car loan early, you’ll save money on interest and can use the money you’re spending on your car note toward other financial goals. Accelerating your loan repayment may not be the right step for you at this time, but if it is, you’ll do well to try and make it work with your budget.