The typical car loan lasts for 5 years, which isn’t a long time in the grand scheme of things, but paying that loan off early can save you significant money in interest payments and it can bolster your trade-in value if you plan on getting rid of the vehicle before the loan is up.
Whatever your reasons are for wanting to get rid of your car payment early, check out these 4 ways that you can pay the load down faster to knock one more debt off your list.
Round Up Your Payment
Round the payment up to the nearest 50 or 100 dollars. Rounding your car loan up rather than paying the exact amount due is a fairly painless way to knock a few months off of the loan. This method doesn’t require a ton of cash and the results are easy to see.
For example, if you buy a car for $20,000 and have a car payment of $371 a month, rounding up to $400 a month can shorten the loan by 6 months. Increase the payments an additional $100 and you can knock 13 months off your loan.
Make biweekly payments instead of monthly payments to cut the length of your loan. Talk to your lender about making biweekly payments instead and you can reduce how much you pay in interest.
All you do is pay half of your payment every 2 weeks. Since there are 52 weeks in the year you’ll wind up making 26 payments which winds up being an extra month’s payment each year. You’ll take off 5 months from your loan if you use this painless payment option.
Make An Extra Payment Each Year
Like the biweekly option, making an extra payment every year results in paying 13 payments per year instead of just 12. This is a great option for people that don’t have the extra money available each month for biweekly payments, but may get a lump sum payment once a year, like when tax returns come in.
While this won’t reduce the amount of interest you pay as much, it will take 5 months off of your loan.
Don’t Skip Any Payments
Don’t fall for the skip payment option. Many auto loan lenders send out a skip payment offer once or twice a year. The lender targets high-cost months like December, when consumers are looking for extra money to spend during the holidays. But trust me, they are not doing you any favors.
Each skipped payment will extend the life of your loan by at least 1 month and add on extra interest to the bottom line. If you skip a payment 4 or 5 times, you’ll add roughly half a year to your loan term. Saying no to the skip payment option will help you stay on track to pay your loan off on time.