Let’s be honest, buying a new car is expensive. The average new car will cost you $37,876 brand new, and about $554 a month in payments. Crazy, right? But, here we are. So what do you do when you’re tired of paying for a car that is depreciating in value the more you drive it? You pay it off. Here’s how to pay off a car loan fast.
1) Round Up
Okay, let’s say that your car note is $470 every month. If possible, could you add an extra $30 and round that up to $500 a month?
$30 may not seem like much, but paying anything extra to your car is better than nothing at all. And, this is a lot easier to start with if you don’t have a lot of wiggle room in your budget.
What to see how much of a difference it truly makes? Check out this free debt snowball tool!
If you can’t “round up” your payments, try splitting them in half. In other words, pay twice a month instead of just once a month. This is great if you get paid every two weeks, as you can just transfer the money when you get paid.
What makes paying every two weeks so special?
Well, you end up paying an extra payment (a full month’s payment!) each year just by paying every two weeks. Again, it may not seem like much, but that extra payment could help you pay off a car loan fast, especially when combined with the rest of the tips on this list. Just make sure to check with your lender to make sure you won’t pay any prepayment penalties.
3) Make Sure Extra Payments Are Going Toward The Principle
Again, you’ll need to check with your lender about prepayment penalties, but if this is an option for you, take advantage of it! Whenever you come across any extra money, throw it at your car loan. Then, call your lender and say “I want to put this extra money towards the principle of the loan”.
This helps you in two ways.
- First, it lowers your principal balance, which means less interest the more you do it.
- Second, it helps you pay off a car loan fast because you’re paying down on what you owe and decreasing costs.
The more you chip in and pay on the principal balance, the more you’re going to save in the long run. And, the faster you’re going to become car loan debt-free.
4) Use Any Extra Money You Come Across
- Get your tax refund?
- Get a small windfall from a family member?
- Did your boss give you a raise or a bonus recently?
I know it can be hard, but pretend that money doesn’t even exist and throw it towards your car loan.
Trust me, I know how bad it sucks when you can’t spend your money the way you want to. But, the faster you pay off your car loan, the faster you can actually ENJOY your hard-earned money.
Imagine paying off your car loan in a few short years just because you took advantage of a few extra hundreds or thousands here and there.
5) Refinance (If Possible)
Now, this won’t work for everyone. But for some people, a car loan wasn’t obtained during the best years of their credit scores. So, by refinancing, you’re able to get a better interest rate, and possibly even better term payments. Plus, you’ll be able to put more money towards the principal.
Now, do not refinance if it doesn’t make sense financially. If your credit score hasn’t changed much, or if refinancing will cost you hundreds to do, it’s not worth it.
Look at the payments you’re making now, and what you could make after a refinance, and decide if you’ll save any money before going through with it.
Let’s say your interest rate is 19% (high, but many people with credit scores under 650 have interest rates around this number). Since you got your car loan…
- your credit score has increased,
- you’ve been keeping up with payments,
- and you’re ready to stop paying so much.
If refinancing your loan didn’t make financial sense, there is another way to see if you can get better payments.
You can look for a different type of loan or credit. For example, there are many credit cards that you can get an “introductory” rate for. If you can get a card for 0% interest for 18 months, that gives you 18 months to pay off your car with 0% interest. And after, if you’re already paying 19%, a credit card might have better interest rates.
Related: The Best Reward Credit Cards in 2021
Another example includes a personal loan. Especially if you don’t have much left on the loan (say $15,000 or less), a personal loan may give you a better interest rate and term, without changing your payments too much. That way, you’re paying off your car loan faster.
7) Get Rid Of It
This is the most extreme way to pay off a car loan fast. But, if you’re really sick and tired of car payments, and don’t really need a car to get around, you can always get rid of the car.
I usually suggest selling the car as a private party (so you can get more money out of it), and then paying the difference if your car was upside down. But, getting rid of the loan all together can make a huge difference, especially if your quality of life won’t suffer.
Related: How to Sell Your Car Yourself
For example, I live in an area where we are less than a mile from everything. Just across the street, I can access four different grocery stores. We also have access to…
- a library, and more!
Plus, both my husband and I work from home.
So for us, having a car just doesn’t make sense. We use bikes and bike ride as a family (and we have a sit-in seat attachment for our daughter). If we need to get anywhere farther, we will take an Uber (which is rare).
Not having a car payment, plus other costs like insurance, maintenance, and repairs, has saved us THOUSANDS. And we can use that money to save and invest instead.
So, if you can do it, get rid of the car! You have no idea how freeing it is to not have to pay for any extra costs when it comes to a metal box.
How To Pay Off A Car Loan Fast – Recapping It!
As you can see, there are so many ways that you can pay off a car loan fast. The key is to start small and build as much as you can, as fast as you can.
- Round up and pay extra
- Make bi-weekly payments
- Put extra toward the principal
- Think ahead about extra money that’s coming
- Refinance your car loan
- Switch to a different type of loan
- Get rid of the car!
Each of these tips will help you pay off your loan faster, but combining them helps even more!
Are you ready to pay off a car loan fast? Now you know how, so there’s no excuses!
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant, product launch expert, and mastermind behind the www.theentrepremomer.com. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.