Paying off a car loan early can boost your credit and help you get a lower interest rate on your next car loan. Even if you are struggling to make your monthly payments, there are still ways that you can pay your car loan off early and reap the rewards of being a responsible consumer.
Check For Penalties
Some lenders do not allow consumers to pay off car loans early and apply penalties to anyone who tries paying off the loan before it is due. Before you put a plan into effect that will pay off your car loan early, you should make sure that your loan contract allows you to do so.
If you get a tax refund each year, then you can apply some or all of that refund to paying off your car loan. When you pay off your car loan early, you free up that loan payment amount each month to be used on other bills. In the long run, using your tax refund to pay off your car loan will save you money on interest payments and help you to get more out of your monthly income.
Pay A Little Extra Each Month
If you pay just $20 more towards your car payment every month, you will pay your loan off faster. When you pay that extra amount, be sure to contact your lender and let them know that the extra payment is to be applied towards the loan balance and not interest. If you do not let your lender know how to apply the extra money, it will just use it to pay the interest and that will not get you anywhere.
If you have four years left on your car loan, then you can refinance the remaining balance into a two-year loan and pay it off faster. When the remaining balances is recalculated into a two-year loan, the payments will be very close to what you were paying before. The difference is that you will be paying the loan off two years earlier.
Make 13 Payments A Year
If your finances are set up to allow you to make an extra car payment each year, then you should do so to pay your loan off faster. At the end of the year, you should contact your lender and let them know that you will be making an extra payment to your account and you want all of that payment to be applied to your remaining balance. Since you already made your 12 required payments for the year, you will be allowed to make a 13th payment that does not go towards interest.
There are many different ways to pay your car loan off early that anyone can do. When you pay your loan off early, you reduce your interest debt and you free up that car payment money to be used for other payments.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!