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4 min read Published August 17, 2022
Writer: Kellye Guinan. Written by personal and business finance contributor

Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal financial matters. She is also a full-time worker at her local library where she helps her community access information about financial literacy, in addition to other subjects.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances through providing concise, well-researched, and clear data that break otherwise complex topics into manageable bites.









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As long as your lender does not apply a prepayment penalty and you can pay it off faster, this is a fantastic method to save. It will result in less interest and, once you're done, you'll have a few extra hundred dollars left in your budget each month. But getting there can be challenging. There are a few tactics you can utilize to pay your loan off faster. But, even the best option, it could cause you to be in a more dire financial situation if not aware of your strategy. Six ways to pay off your car loan faster There's no one path to paying back your vehicle loan ahead of time. In reality, it is sensible to change your strategy. When you've got an idea of what you want to do, you are able to make use of a couple of methods to make payments on your car loan more quickly. 1. Refinancing your loan with a different lender could be a simple method of paying off your loan quicker. If you decide to take the shorter loan period, you may be able to maintain the same monthly installment given that you get lower interest rates. If you don't make additional payments or round your payments up to make them more frequent, you'll be able to finish the car loan more quickly. 2. Make biweekly payments Although it may seem like a lot but paying twice per month instead of just one will get you closer to the finish line quicker. This will also to save money on . The reason is that interest will take less time to accumulate before making an installment -- and also because you'll always lower the total loan balance. It helps move you toward the date of your early payment without significantly increasing the amount you pay towards your loan each month. 3. Round your payments up to the nearest hundred Similarly the process of rounding your payments will result in a minor change month-to-month but a substantial change over the long run. By rounding to the nearest 100, or at the very least, the closest whole number, you will gradually reduce the amount of principal on your vehicle loan. Also, you will be ahead of the schedule, which will keep you ahead of the interest rate and allow you to make a smooth transition into a faster payoff. 4. Opt out of unnecessary add-ons if you would like gap insurance as well as an extended warranty or a service agreement to your loan Contact your lender and cancel these. You should get a prorated refund of the remainder , and also reduce your monthly payment. Instead of putting the cash back into your bank account use it towards the loan. This way, you'll owe less overall and will benefit from a lump sum payment. 5. Pay a larger amount of additional payments Tax returns, bonuses and other big lumps of money could be used to pay for your car loan. Any time you can reduce the principal amount by a couple hundred dollars, it's worth doing. Like rounding your payments and making payments biweekly this will stop interest from accumulating. As your loan balance decreases and your monthly payment increases, more goes towards principal, which can lead to the payment being made early. 6. Pay each month Even if you are ahead of your schedule however, you should still make payments on your loan every month. This prevents interest from accruing and, in turn, more of your principal is paid, further reducing the interest you pay. In addition, making regular payments even in the absence of a need will lead to paying off your car loan early. When not to make a payment on your car loan in time. Making the decision to pay off your vehicle loan early means an extra few hundred dollars that you can put in your account every month. But in some cases, you could negatively impact your financial position more than you help -- so it may not be the ideal move. Avoid paying your loan off early If there is a penalty for early payment. The penalty is basically a way to punish you for not making enough payments or for paying off your loan early. The lender is trying to compensate for the interest you would have paid if you had stayed on schedule. If there's a prior payment penalty, ensure it won't cost you more than you'd have to pay in interest. Your loan uses precomputed interest . The interest you pay is front loaded each year so you pay for the month that accounts for a greater share than the last month. If you are able to take care to pay off your loan early, you won't substantially reduce costs of your vehicle loan. In this situation it's best to stick to the loan timetable. You don't have much debt. While it may sound counterintuitive, your credit score is calculated on the types of debt you have and the duration the accounts. Because automobile loans are long-term debt paying on a regular basis for many years will maintain your credit score. One caveat: making payments to pay off your loan may lower the credit utilization ratio, which represents about 30 percent of your credit score. If you are in debt with other creditors and have high percentage of your income to debt (DTI) and you want to get rid of one debt will help boost your score. Ways to lower your monthly car payments Aside from refinancing your loan, there are two methods to cut down your monthly payments either defer them or ask for a loan modification. Deferment allows you to skip payments if you're experiencing short-term financial hardship. Loan providers may give you one to three months deferment in order to help you get through the. However, deferment will only move the payments to the close of your loan which means that you'll be required to make them up in the future. Additionally, you will be accountable for interest, so in the end, it is more expensive. The lenders may not be as willing to modify your loan however, it's not going to hurt to ask. Much like refinancing, will change the conditions of your loan by either extending your term or lowering your interest rate. If you are able to get an extension to your loan, you could reduce your monthly payment without the need to find a new lender. What next? It might not necessarily be the best option to pay off your car loan in advance. If you'd face prepayment penalties or a possible hit to your credit score The savings will not be enough to justify the expense. If you're looking to pay off your the burden of car loans, getting rid of them is among the fastest methods to free up your budget. Refinancing -- or simply making additional payments is the most effective way to repay your car loan more quickly. Even if you only pay a few extra dollars a month, you will decrease your debt and cut a few months out the length of your loan. Find out more


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Written by Business and personal finance Contributor

Kellye Guinan is a freelance editor and writer with more than five years ' experience within personal finance. She also works full-time as a employee at the library in her town in which she helps the community get information about financial literacy, in addition to other topics.



Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to control their finances by providing clear, well-researched facts that break down complicated topics into bite-sized pieces.






Auto loans editor




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