These days owning a vehicle is basically a necessity for getting to work, seeing family and friends, and running errands. But having a car loan attached to your vehicle doesn’t have to be a necessity.
Below are listed some of the best and easiest strategies you can use to pay off your auto loan faster.
Benefits to Paying Off Your Car Loan Faster
Not only does paying off your loan early free up cash for your budget, you can focus on other financial goals, like saving money for a house, putting funds away for retirement or even your kid’s college education.
It could also affect your credit score and overall financial history, if you’re underwater with your loan, or it’s too high compared to your other debts. Getting it paid down is a solid financial move that can have big benefits in the future.
Make One Extra Payment a Year
It may seem overwhelming for any budget to make extra payments every month, so consider making one extra payment spread out over a year’s time. For example; if your auto payment is $300 a month, just divide that by 12 to get $25. Add that extra $25 to every payment throughout the year, and you will have made one full extra payment.
It may not seem like a lot of money, but over time it can really knock down your total vehicle loan balance. Plus, you’ll be saving money on interest payments since you’re making headway on the principal balance.
Use the “Gigs for Goals” Method
This strategy was invented by another financial geek named J. Money, who runs a blog called Budgets Are Sexy. His “Gigs for Goals” idea is based on taking on extra work, projects or side gigs and setting the funds aside for one specific goal.
In this case you could take on a weekend job, or do some freelance work at night, then use the income from that to put towards paying your car loan off faster. You could, of course, ask your boss for raise and put that extra money towards the loan. But in my experience it’s better to have a separate gig for your goal, so you aren’t tempted to use it for other bills and expenses.
Round Up Your Payments
Another way to trick yourself into paying your car loan off faster is to round up the payments. Depending on what your budget will allow, you could tack on an extra $40 or $50 a month. Here’s an example of what I mean.
If your current car loan payment is $267.22 you round that up to $275 or even $300 to really make an impact. After 12 months that could add up to $393.36 extra ($300 – $267.22 =$32.78 x 12 months). No matter how much you round up, you’ll be making more progress with slow and steady steps towards becoming debt free.
Refinance Your Auto Loan
This strategy is one of the quickest ways to lower your car payment while saving money on interest. Most local community banks and small credit unions are able to offer lower interest rates, than other bigger financial institutions. By shopping around at a few different places, you can verify if you’re able to refinance the car loan to a better interest rate.
Anything more than a 1% savings is generally worth any additional fees and closing costs. Add in the fact that you could keep paying the same payment and you could really knock out your car loan faster.
Pay Half the Payment Every Two Weeks
This may seem like a wash, but if your current lender allows you to make biweekly payments, sign up for it right now (ReadyForZero can help with this). When you make payments more frequently, the money goes straight to the principal balance faster than with a once-a-month payment schedule.
This in turn will save you lots of money on interest payments. Just be sure that your lender won’t charge you excess fees to set this up, or that your loan contract doesn’t have any other payment requirements.
Bring in Extra Money
Lastly, in addition to the Gigs for Goals method, one of most effective ways to pay off any loan faster is to make more money. You can do this in multiple ways, with everything from working extra hours at your job, to offering services on a site like Fiverr, to doing teaching or tutoring on the weekends. The options are limitless.
Although working more to bring in extra funds might sound daunting, just remember that it’s only for a short time until you can pay off your car loan. And when used in conjunction to one of the ideas mentioned above, you could pay off your car loan in half the time. This will bring you one step closer to regaining financial independence!
Image Credit: Thomas Hawk