One expense that’s draining your budget and you want to cut out completely? Car Loans. After paying off my credit card debt, my next line of business was to cut out the car loan as well. How freeing it is not to have to pay that bill every month!
First, you’ll want to determine exactly how much you owe, and your interest rate. If your rate is astronomical, you may want to looking into refinancing. No sense paying all that interest if you can help it.
Make sure that you won’t be charged pre-payment penalty fees for paying off your note faster. You can obtain this information from your lender or review the paperwork from your original loan – if you have it.
Find an online calculator (such as Bankrate) and plug in your numbers. Play around with it and figure out how much you’ll be saving if you make bi-weekly payments or if you round up your payments, if you make an extra payment etc.
5 Tips for Paying Off Your Car Loan Faster
Make Bi-Weekly Payments
You can set this up to automatically deduct from your checking account every two weeks, when you receive your paycheck. This squeezes in another payment without you realizing it – similar to how bi-weekly mortgage payments work.
Paying bi-weekly could shave months off of your loan, for the simple fact that your payments are being applied more frequently, fitting one more payment in per calendar year, cutting down on the amount of interest you pay over the life of the loan.
Note: be sure to speak with your lender before starting to ensure there is no penalty for paying off early and that they will accept the bi-weekly payments.
Pay Any Additional Amount
My car payment was $255. But, by making $300 car payments, an extra $45 was applied to the loan, which is $540 per year – the equivalent of two extra monthly payments! When you round up even a little, it can add up to months of extra payments.
Make Extra Payments
By making just one or two extra payments – made straight to principal, you’ll want to specify principal payment – you’re shaving even more time off your loan.
Having a garage sale this summer? Put some of the profit toward your car loan principal! Do you typically get a refund at tax time? Put some of that toward your car loan!
I know it’s not fun, but it’s not fun paying that car loan every month either.
Do Not Take the Skip Payment Offer
Many lenders (my credit union included) offer a “skip a payment” promotion around Christmas time. You may be tempted, but don’t do it! Sure, you’re skipping a payment now, but all they’re going to do is tack that payment on to the end of your loan, and you’ll be charged interest as well.
If your interest rate is just out of control, and you’ve got a considerable amount of time left on your loan, consider refinancing.
No sense in paying additional interest if you can help it, and see if your new lender will knock off another .25 or .5% for signing up for paperless billing. What are they going to say? No? Can’t blame you for asking.
The bottom line: It all adds up in the long run, and if you can get out from under one debt, apply that freed-up monthly expense to your next debt. Snowball it, baby and you’ll be debt-free in no time!
What are some other ways you’ve knocked out your car loan?