5 Tips for Paying Off Your Car Loan Faster
Owning your own car is a milestone that many people hope to achieve. Owning your own vehicle provides you with more freedom and plenty of possibilities, but the cost of purchasing a car might feel steep. A new car can cost $30,000 or more, and for people who don’t have enough cash lying around to pay for the car up front, they usually end up getting a car loan.
A car loan can help you get the vehicle faster, sure, but all loans have interest, meaning you’ll end up paying more than the initial price of your vehicle. Each month, you’ll pay a certain amount that will go toward the principal balance as well as money that goes toward the interest accrued. So you’ll want to look for the right car loan with the right institution. At Rivermark, you have many options for keeping your interest costs low while you work to pay for your car.
Regardless of how you pay your loan or who you’re paying it to, the faster you pay it off, the more money you’ll save. Here are a few ways you can start paying your car loan off faster.
Tip #1: Round Up Your Payments
Saving money isn’t easy for everyone, which is why implementing little savings tricks can be beneficial. Rounding up your payments is a great way to put more money down on your principal balance and come one step closer to owning your car. Start by rounding up your auto loan payments. Choose an amount that seems doable to you, such as rounding up to the nearest $50 or $100. If your payment is $360 a month and you pay $400 by rounding up each month, in 9 months, you’ll have made an entire extra payment on your car loan.
Another way you can use rounding up to help you pay your car loan off faster is to round up on all your purchases. There are apps that allow you to round up all of your purchases to the next dollar so that you can save the extra money and put it toward something else. Rounding up by the hundred for your car loan may seem daunting but rounding up a $12.10 purchase at a store to $13.00 can be a lot less intimidating. And if you do it on all of your purchases, you can end up saving a lot of money to put toward your car loan.
Tip #2: Use Windfall Money to Pay More
There are times when you may come into money unexpectedly. It could be due to birthdays, holidays, or a work bonus. Receiving this unexpected financial gain is often referred to as a windfall, and if used right, it can help you pay off your car loan faster.
This type of one-time large payment can make a big dent in the money you still owe on the car. It’s tempting to use the money to buy something outlandish or fun, but putting it toward something useful like your car loan can help decrease the amount of interest you pay over time. If you think of it that way, the money you’ll be saving on your car loan will feel like a windfall in the end.
Tip #3: Refinance Your Loan
Depending on when and where you applied for your car loan, you may not have received the best deal. Car dealerships are notorious for having higher interest rates on their loans, and if you didn’t shop around beforehand, you may have thought it was a good deal at the time. But over time, you may notice that you're paying a lot more than you want to and that it will continue until the loan is paid off.
Just because you took out a loan with one financial institution doesn’t mean you have to continue to pay your car back through that lender. Refinancing your loan is a great way to help pay your car loan off faster, and it’s generally easy to do. When you refinance, you can receive a lower interest rate, which will allow you to pay more on the principal and save you hundreds of dollars in interest in the long-term. Rivermark has auto loan rates as low as7.49%APR when you refinance your auto loan. Take advantage of refinancing so that you can pay your car loan off even faster.
Tip #4: Don’t Extend Your Terms
If you’re looking to save money, you might be tempted to increase the length of your loan. This means that you’d agree to a longer period of time to pay it back, such as 10 years instead of 7 years. People often do this so that their monthly payments will be lower and so they can have the option to pay more when they want to. You may not be paying as much every month, but you’ll be paying a lot more in the long run.
If you’re looking to pay off your loan faster, this isn’t the way to go. When you increase the length of your loan, you agree to pay interest on it for longer. Even if you’re going into it thinking that you can just pay off more than your monthly payments, it isn’t in your best interest. For the months you choose not to, more interest will acquire, making it even harder to pay off the balance.
Tip #5: Make Biweekly Payments
When you apply for an auto loan, you typically agree to a monthly payment, but if you’re looking to pay your loan off faster, you should look into other options. Ask your financial institution if they will allow you to make biweekly payments instead. Along with helping you to pay off your loan faster, it may also save you money.
Biweekly payments can help you in a few ways. The most prominent is that it can allow you to pay on the principal earlier and therefore decrease the amount of interest you’re paying at the end of the month. These small dents in the principal balance can help you to save a lot over a longer period of time. Biweekly payments can also let you pay a little more per year than you normally would. There are only 12 months in a year, but there are 52 weeks. If you pay half of your balance every two weeks, you’ll end up paying an extra months’ worth of payments every year.