How to Pay Off Auto Loans Faster Than The Daytona 500
Most people in most places need a car to get around, especially if they do not live in an area with robust public transportation. Anyone that lives in an area where a vehicle is needed knows the hefty price tag with owning a car. As you are making payments on your car, you may be wondering how to pay off auto loans faster. Cars depreciate quickly; in most cases, as soon as you drive them off the car lot, they are losing value. This is why it makes sense to pay them off as quickly as possible. Continue reading to find out more about paying off your auto loan.
How to Pay Off Auto Loans Faster by Determining Your Current Balance
You cannot determine how to pay off your auto loan fast until you know how much you owe on your current loan. You should also understand if you can pay off your loan early. Some lenders do not like that prospect because they lose money. Lenders earn money from the interest you pay. If your loan is calculated with simple interest, it means the interest is based on whatever your loan balance is. If you pay off the auto loan early, you pay less interest. This means the lender does not make as much money from your loan.
Once you determine your loan amount and the type of interest you have, you need to find out if there is a prepayment penalty. A prepayment penalty is a fee for paying off your car loan early. Some lenders put a penalty in place if you pay off the loan early to offset the money they will lose. In addition, when you make extra payments on your loan, the lender may apply it to your interest and not the principal. Therefore, you may need to specify that the additional payment is only for the principal. Again, it is best to check with the lender to determine if this is the case for your loan.
Calculate Savings
If you use a savings calculator to determine how much money you will save if you make additional payments on your car loan, it must encourage you to pay it off sooner. Often when you can see the numbers in black and white, it gives you a broader understanding of what you can save. You can begin to think about how it improves your budget because you have money freed up.
Refinancing Current Loan
You may have a high-interest rate on your current auto loan. If that is the case, you may be able to refinance your loan to get more favorable rates. This gives you a smaller payment. In addition, if your credit has improved since you first got the loan, you may be able to get a lower interest rate. It is essential to remember the purpose is to pay down your loan faster. Therefore, while you are refinancing your loan, you want to see if you can decrease the term of your loan. For example, if your original car loan was for 72 months, you may want to get a 60-month loan with a lower interest rate.
Pay Down Principal
When you are wondering how to pay off auto loans faster, a great way to do this is to make more payments. As long as you have a simple interest loan, paying down the principal reduces the amount of interest you pay. This decreases the length of time you pay on the loan, as well as the overall amount you pay. One of the best ways to pay down your loan faster is to make biweekly payments on your loan. If you make payments every two weeks instead of monthly, you end up making one more payment each year. In addition, you are paying less interest and a lower overall cost.
Round Up Your Payments
Another way to reduce the amount you pay for your car loan is to round up your car payments. If you can slightly increase your monthly payment, you can reduce how many payments you make. Paying an extra $50 per month may not be difficult for you but goes a long way to reducing the amount of your loan.
Here is an example:
Suppose you borrowed $10,000 with a 10% interest for 60
months. Your regular payment would be $183.33 per month.
Rounding up your payments to $200 per month, you could
pay off your loan five months earlier.
Find Extra Money
Another great way to pay off your car loan faster is to find extra money and pay more than one payment per month. You may think that is impossible to do, but it may be easier than you think. However, you have to be committed to paying down your loan. You may have to compromise other things, like going out to dinner to be able to pay down your loan faster.
When you get your tax return, you can use that to make more payments on your loan. Depending on your car payment amount and your refund, you might be able to pay enough to make four or five extra payments. Anytime you get a bonus or a pay raise at work, you can put that extra money towards your loan. You may not like it at the moment, but once you pay off your loan, you free up that money each month. These are all payments that you did not expect to receive. You will not miss them if you put them towards your car loan.
You can get a second job or so some extra work from home to earn extra money to pay towards your loan. For example, you may be able to find a job that you can work in the evening from home when it fits into your schedule. There are many jobs available; you just have to look for them. You could also sell items that you have sitting around your house that you no longer want. You can sell them at a garage sale or use an online site to sell your items.
Create A Budget
If you do not already have one, you should create a budget. This is not something many people like to consider, but it is something everyone should have. Creating a budget is the best way to know how much money you have coming in and going out each month. It also gives you insight into where you are spending money. For example, you may not even realize how much money you are spending every morning by going out for coffee. Once you create a budget, you can plainly see where you are spending money.
In addition to creating a budget, it can help you work towards paying down all your debt, not just your car loan. When you write down all of the money you spend each month, this includes all of your bills and debts. Once you begin to see where you can save money, you can also see where you can put that money to the most good. Typically that is by putting it towards your debt to pay them off as quickly as possible. Once you begin to see your debt melt away, you may be willing to make more budget cuts in order to pay off more debt.
Does Paying Your Car Off Early Impact Your Credit
When you are considering how to pay off auto loans faster, you should first understand how it might impact your credit. It can help your credit by reducing the amount of debt you have. When you have a high debt to income ratio, it can negatively impact your credit. As you pay down that debt, it can help improve your credit. Not only are you reducing your debt, but you are showing creditors that you pay off your debts on time.
It can negatively impact your credit if it is the only debt you have. Creditors like to see that you have some amount of debt and use it responsibly. Responsible use of debt means that you make your payments on time and in the correct amount. Most people have a mortgage, a credit card, and possibly another type of loan. This all shows creditors that you have a diverse credit range.
Need More Help?
Debt and credit can be confusing. Sometimes it is challenging to know when debt is good for you and when it is bad. If you need help, do not worry, The Goalry Mall is here for you. We have a wealth of information available on our website. We have articles videos, and you can even talk to experts about all your credit questions. In addition, the Goalry Mall has special spaces dedicated to credit and debt, called Creditry and Debtry. If you have any questions, we are happy to help you navigate the world of debt and credit. You do not have to figure it out alone. We have experts who can help.
Need Extra Help Managing Your Debts? Meet Debtry.
Conclusion
If paying off your auto loans faster is essential to you, this article provides enough information to get started. If you follow these suggestions, you can be well on your way to reducing your car loan debt. The worst thing you can do is nothing. When you know what to do and what to expect, you are well equipped to take the next steps.