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4 minutes read. Published 17 August 2022
Written by Kellye Guinan. Written by personal and Business Finance contributor

Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finances. She's also a full-time worker at her local library where she helps the community gain access to information on financial literacy, among other topics.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances by providing clear, well-researched facts that break down otherwise complex subjects into digestible pieces.









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If that your lender does not charge a prepayment penalty and you can pay it off faster, this is a fantastic way to save money. It means less interest paid and, once you're done, you'll have a few extra hundred dollars left in your budget every month. But getting there can be challenging. There are several strategies you can use to pay off your loan off faster. But, even if you can do it, it may make you in a much worse financial situation if not conscious of how you approach your finances. Six ways to get rid of your car loan faster There is no specific way to pay the car loan prior to the timetable. It is beneficial to alter your strategy. Once you've got an idea of what you want to do, you can benefit from a variety of methods to make payments on your car loan faster. 1. Refinance with a new lender is a great method of paying off your loan quicker. If you decide to take an a shorter loan term, you may be able to keep the same monthly installment given that you get an interest rate that is lower. Even if you don't make extra payments or round up your payments, you will naturally be able to pay off your car loan more quickly. 2. Pay biweekly, even though it might seem like a lot but paying twice per month rather than just one will get you closer to the finish line quicker. It will also help save on . The reason is that interest will be less likely to accumulate before you can make an installment -- and because you will consistently lower your overall loan balance. It helps move you toward the date of your early payment without significantly increasing the amount you put toward your loan every month. 3. Make your payments round to the nearest 100. Similar to this the process of rounding your payments will have a small impact on the month-to-month basis, but it will make a huge difference overall. By rounding to the nearest hundred, or at the very least, the closest total number, you can gradually reduce the amount of principal on your car loan. You will also get ahead of schedule and stay ahead of interest and allow you to make a smooth transition into a faster payoff. 4. Get rid of unnecessary add-ons If you like gap insurance, an extended warranty or a service agreement to your loan Contact your lender and cancel these. You'll get a prorated refund of the remainder , and also reduce the amount you pay each month. But rather than putting that money in your account, apply it to the loan. In this way, you'll be liable less in total and get a lump sum payment. 5. Make a large additional payment Tax returns, bonuses , and other big lumps of money could go towards your vehicle loan. Any time you can reduce the amount of your principal by a couple of hundred dollars, it's likely worth doing. Similar to rounding your monthly payments and making payments biweekly to avoid the interest from rising. As your loan balance decreases the more of your payments goes towards principal, leading to the payment being made early. 6. Pay each month Even if you are ahead of schedule, you should still pay your loan every month. This will stop interest from rising and, in turn, more money goes towards principal and thereby reducing the amount of interest you pay. Making regular payments even that aren't needed will lead to paying off your car loan early. When not to pay off your car loan in time. Paying off your car loan earlier means you'll have an extra few hundred dollars that you can put in your bank every month. However, in certain situations, you could negatively impact your financial situation more than it helps -- so it may not always be the best decision. Beware of paying your loan off in a hurry when there is a penalty for early payment. A essentially punishes you for not paying your loan in full or fully paying off your loan early. The lender is trying to compensate for the interest you would have incurred in the event you had kept to your schedule. If there's a prior payment penalty, be sure that it won't cost you more than what you'd normally be paying in interest. Your loan uses precomputed interest . The interest you pay is front loaded every year, so you pay for the month that is accounted for a higher percentage than the month following. When you take care to pay off your loan early, you aren't going to substantially reduce the cost of your vehicle loan. In this case it's best to stick to the loan schedule. There isn't a lot of debt. While it may sound counterintuitive, your credit score is calculated on the types of debt you have and the duration the accounts. Since automobile loans are long-term debt, making consistent payments for years will help maintain your credit score. One caveat: making payments to pay off your loan can lower the credit utilization ratio, which accounts for about 30 percent of your credit score. If you have other debts and a high percentage of your income to debt (DTI), then removing one of them will improve your score. Strategies to reduce your monthly car payments Aside from refinancing your loan, there are two ways to lower the cost of your monthly installments either defer them or ask for the loan modification. Deferment lets you skip the payment if you're having financial issues that are short-term. The lender may provide one to three months deferment in order to help you get through the. However, deferment will only move the payments to the finalization of your loan which means that you'll still have to cover them at some point. Additionally, you will be accountable for interest and at the end of the day it will cost more. Some lenders might not be able to modify your loan, but it doesn't harm to inquire. Much like refinancing, will alter the terms of your loan by either extending the term or lowering your interest rate. If you are able to negotiate a modification to your loan or loan term, you can reduce your monthly payments without having to apply with another lender. The next steps necessarily be the best option to pay off your vehicle loan in advance. If you'd face prepayment penalties or a potential negative impact to your credit score, the savings will not be enough to justify the expense. If you're looking to get out of the burden of car loans, getting rid of them is among the most efficient methods of making room in your budget. Refinancing or making additional payments are the best way to pay off your vehicle loan quicker. Even if it's just an extra few dollars per month, you'll be able to decrease your debt and take a few months off of your loan. Learn more


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Written by a Personal and Business finance contributor

Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finances. She is also a full-time employee at the library in her town where she helps her community get information about financial literacy, in addition to other topics.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing clear, well-researched data that breaks complicated topics into bite-sized pieces.






Auto loans editor




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