5 tips to pay off your car loan faster and save money

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  • Paying off your car loan early can save you money in interest and free up money in your budget.
  • Refinancing your loan can get you a shorter term and a better interest rate.
  • You can round your loan repayments to the nearest $50 to reduce your tenure to months.
  • Learn more about Personal Finance Insider loan coverage here.

Many people take out car loans with terms of up to eight years. Car loans are usually one of the biggest financial responsibilities you will have, behind a mortgage.

Repaying your car loan early allows you to eliminate a monthly payment from your expenses and free up money in your budget. The longer your term, the more interest you will pay, so you may benefit from early repayment of your loan.

Here are five tips for paying off your loan before the end of your term.

1. Make half your monthly payment every two weeks

One option for paying off your auto loan early is to split your monthly payment in half and make those payments every two weeks. Thus, you will make 26 partial payments during the year, or 13 full monthly payments.

This method may not seem to make a big difference. But you’ll end up with one extra payment per year, shortening your overall tenure by several months. You can also save some money in interest.

2. Round up your payments

Instead of making the required monthly payment, consider rounding up your payments, say to the nearest $50.

For example, suppose you borrowed $13,500 at 5% interest for 72 months. Your current monthly payment would be around $217. Rounding up your payment to $250 per month could save you more than $330 in interest over the term of the loan and reduce the term of your loan by 10 months.

3. Make a large extra payment each year

Making an additional payment each year works the same way as rounding up your payments each month, except you’ll make a payment all at once instead of spreading it out over the year. You may want to set aside money from tax refunds, bonuses, and pay raises for a large lump sum payment for your car loan.

The earlier you make your additional payment in the term of your loan, the more money you’ll save in interest because your overall balance will be lower.

4. Refinance your loan

Refinancing your loan can help you get better loan terms than if your


credit score

or the financial situation has improved. You’ll want to negotiate an earlier repayment date and you’ll likely get a lower interest rate.

You probably don’t want to refinance to extend your term – even if the monthly payment is smaller – because you’ll end up paying more total interest. You could also reverse your loan, meaning you owe more on your loan than your car is worth. Then, if you want to get rid of your car before paying it off, you won’t just have to sell or trade it in, you’ll also have to pay the lender the difference between the car’s value and the loan amount. .

5. Adjust your budget

If paying off your loan early is a priority for you, it might be worth taking a look at how you’re allocating your money and spending more of it on your loan debt.

For example, you could cut $25 from your entertainment or clothing budget and use that extra money to pay for your car. It may not seem like much, but you could pay off your loan a few months sooner.

What should you keep in mind before repaying your auto loan early?

Before prepaying your loan, review the terms of your loan to make sure you don’t incur prepayment penalties from your lender. Sometimes lenders will put them in place because they will earn less money in interest if you pay off your loan before your term expires.

You’ll also want to figure out how much you could save by paying off your loan early. This way you can determine if the savings are worth the extra payments and effort.

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