Car finance is one of the biggest causes of debt for the average Briton. You cannot have money for other expenses or savings when you are trapped under a mountain of debt. But if your financial circumstances allow, you can pay off your car loan early. Not only does this free up money for other things, but it improves your credit score as well.
5 Ways to Pay Off Your Car Loan Early
If you no longer want to be buried in debt, it’s time to figure out how to repay your loan – and fast. Here are five ways to repay off your loan early.
1. Pay Half Your Monthly Payment Every Two Weeks
Paying off your car loan bi-weekly is a great way to pay off the loan fast. While you’re required to make payments on a monthly basis. You can talk to your auto lender to let you make bi-weekly payments. Divide your monthly car payment by two then make that payment amount bi-weekly. You’ll make 50% of your payment 26 times a year which translates to one extra payment over 12 months.
Another benefit of making payments every two weeks is that it will reduce the amount of interest you pay over the course of the loan.
2. Make One Large Extra Payment Per Year
If making biweekly payments isn’t financially viable for you. You can get the same results by making a lump sum payment every year. Paying some extra cash once a year can reduce the life of the loan. You can make a large payment when you get extra cash from a tax refund, a bonus from work or a pay rise. You can also tap into your savings and use some of it to pay off your loan.
3. Refinance Your Loan
Refinancing your loan to a shorter term with a better rate is an effective way to pay off your debt fast. Lowering your interest rate will slightly reduce your monthly payment – and if you can increase the amount you pay monthly, you’ll be able to reduce the loan amount.
This option is great for those who are at a better financial position than when they were when they purchased the car and whose credit score has improved. With better financial standing, you can also get a newer car on finance very easily when looking to buy a car.
4. Make At Least One Large Payment Over the Term of The Loan
Similar to making one large payment per year is making at least one large payment over the course of the loan term. Making a large extra payment a year can save you more in interest. And help you pay off your loan quickly.
Remember that doing this on its own won’t help you pay off the loan faster. But it will reduce the interest and the loan term by a few months.
5. Never Skip Payments
Some auto lenders let borrowers skip payments once or twice a year. However, missing your scheduled payments has some consequences. Each skipped payment delays the repayment of your loan by one month and adds on the additional interest which will cost you more money in the long run.
Paying an auto loan takes time and discipline. But if you commit to making extra payments and avoid skipping payments. you’ll be on your way to paying off your debt fast.