5 ways to pay down your car loan and save money
The average price for a new car is currently $36,744, according to the National Automobile Dealers Association. Most Americans can’t afford to pay this out of pocket, which makes taking out a car loan a necessity.
Car loans are one of the most common types of consumer loans, and they differ quite a bit from other types of loans. Since the loan is secured by the vehicle, auto financing tends to be easier to obtain, even if you have bad credit, although loan rates could be higher, creating a higher monthly car payment.
And most dealers offer convenient, easy-to-access auto finance option. But a car is a depreciating asset, which means it loses value over time.
Eventually, you could find yourself in a position where you owe more to auto lenders than it’s worth. So it makes sense to try to pay a car loan off as quickly as possible – below are five ways to get started.
To begin exploring your options for reducing your monthly payments, car owners can visit Credible for the best personal loan rates.
1. Consider refinancing your loan
If your credit score has significantly improved since you took out the initial loan, you might want to see if an auto refinance is a good option for you. With a refinance loan, you replace your current car loan with a new loan at a new low rate.
But if you choose an auto refinance, you want to keep the loan term the same. If you extend your loan terms, your loan interest rate and your loan payment may be lower, but you won’t pay the loan off any faster. You can use an online auto loan calculator to see how much you could save with an auto refinance loan.
If refinancing your auto loan doesn’t make sense for you financially, you can look into taking out a personal loan instead. If you’re interested in exploring your personal loan options, you can visit Credible to find your loan interest rate and compare lenders.
CAN I USE A PERSONAL LOAN TO BUY A USED CAR?
2. Make two small monthly payments
Right now, you’re probably making one monthly payment toward your car loan. To speed up the repayment process, try making two smaller payments every two weeks. If you keep this up, you’ll end up paying one extra car payment per year.
When you do this, you’ll pay less money in interest over the life of the loan. And these extra monthly payments will help you pay off your car sooner, though not by much.
THE SECRET BENEFIT OF PAYING YOUR MORTGAGE BIWEEKLY
3. Take advantage of any extra income
Another way to pay off your car loan faster is by taking advantage of any extra money you receive throughout the year. If you get a sizable tax refund, cash for your birthday or a bonus check at work, why not put that money toward your auto loan?
Putting "fun" money toward your car loan may feel challenging at first, but once the loan is paid off, you’ll have more flexibility in your budget for extra expenses. And you’ll end up saving more money in interest over time.
4. Pay a little extra every month
Another way to pay off your car loan faster is by paying a little bit extra every month. For instance, if your monthly car payment is $200, try to pay $300 toward the loan every month. This extra money adds up quickly, and you could save yourself years paying down that loan.
If paying that much extra isn’t feasible given your current financial situation, you can try rounding up your car payments instead. For instance, a $275 car payment becomes $300. This kind of change is small enough that it feels doable to most people, but it can make a big difference over time.
WHAT IF I PAY MY CAR LOAN OFF EARLY?
5. Consider a low-cost personal loan
And finally, you might consider paying off your car payment with a low-cost personal loan.
Unlike car loans, personal loans are unsecured, which means you don’t have to secure the loan with collateral. Because of this, your income, credit history and credit score will become a much higher focus for a personal loan, and improving your credit could help you get a lower rate.
If you’re interested in exploring this option, you can visit Credible and get in touch with an experienced loan officer. They can answer your questions and help you figure out if this is the right move for you.
The bottom line on paying off your car loan
Paying off your car can help you save money and reach your financial goals faster. Even making small additional auto loan payments will help you pay off the loan quicker and save money on interest.
For some people, taking out a low-cost personal loan may be the best option available. If you’re interested in exploring your personal loan options, you can visit Credible to compare rates and lenders.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at firstname.lastname@example.org and your question might be answered by Credible in our Money Expert column.