No one likes to have loan debt hanging over their head. Paying off a car loan early can remove a serious financial stress from a monthly budget. The following strategies will help you finish paying off your car loan ahead of schedule, saving you money on ongoing interest.
Make Every Payment
Many loan and financing companies allow borrowers to skip one or two payments a year without penalty. While skipping a payment may seem like a good idea, it will result in paying more in interest and taking longer to satisfy the loan. Reserve your allowable missed payments for times of financial hardship.
Refinancing
Refinancing can be useful for helping pay back a loan ahead of schedule, but pay attention to the terms of the refinanced loan. Only pursue refinancing if the new loan includes a shorter repayment term and monthly payments that are lower or at least fit into your budget.
Additional Yearly Payment
One additional payment a year, preferably more than the usual monthly payment amount, will help you pay off your car loan easier and in less time. The annual payment that is larger than the usual amount will lower the principal you owe, which in turn reduces the amount of interest you will pay over time.
One-Time Lump Payment
At some point during your loan term, preferably early on before very much interest has accrued, make a sizeable lump sum payment. Similar to the benefits of making an additional annual payment, a singular lump payment will reduce the amount you owe which, in turn, lowers the amount of interest that will be added every billing cycle.
Pay Twice a Month
Instead of making your one required payment every month, split the minimum monthly payment in half and pay twice a month. This may seem like you are paying the loan off in the same amount of time, but paying twice a month will actually result in an extra monthly payment made toward the loan annually.
Pay to the Nearest Dollar
Round every payment you make to the nearest dollar or round figure. This is a small effort you can make with every payment that will allow you to pay back your car loan early. For example, if your monthly payment is set to $314.73, you can pay $320 and pay the loan back faster.
By utilizing a few easy strategies, you can pay back your car loan early. Check with your financing company and the terms of your loan to make sure you’re allowed to make payments outside the structured repayment time-frame.
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