How to Pay Off Your Auto Loan Faster
Most Americans who have an auto loan, usually make payments on it monthly. A car payment is usually considered in the majority of people’s budget as a monthly financial obligation and lasts many years before finally being paid off.
However, paying off an auto loan doesn’t have to take as long as most people think. Auto loans like other loans, are about making your monthly payments as frequently and consistently as possible. As a result, there are a number of ways to pay your auto loan off faster and stay out of debt.
Make an Extra Auto Loan Payment Every Year
When paying off an auto loan, it’s all about budgeting. You have to plan monthly to make a payment so that you are constantly decreasing the principle amount you owe on the loan.
However, every year, you should be budgeting so that you are making at least once extra payment. This extra payment doesn’t have to be an amount significantly bigger than the others but the same amount.
If you do this, these extra payments over the years will add up and eventually decrease your payment period by a year or more.
Pay A Little More When You Can
When you are making your monthly payments, look for opportunities to increase your payment, when you budget allows. For example, depending on your budget you could allocate anywhere from $20-$100 extra onto your typical monthly payment.
The more you do this, the faster you will pay off your loan and get out of debt. Not to mention, you won’t have as much pressure on yourself every month to have to consistently make the same payment because you will have a little wiggle room.
Put Any Extra Money into One Payment
If you are making any extra money on top of your income, or you’re doing some side jobs, try to collect all of that money together and make one large payment. Make sure this payment is a significant amount because anything too small won’t make an impact. Plus, it will be outweighed by the interest on your loan anyways.
A good rule of thumb is to make your lump sum payment equal to or higher than the monthly payments you already make on your auto loan. Also think of this as an chance to put down as much money on your auto loan as possible so that you won’t have to worry about paying it off later.
Refinance Your Car
This is one of the easiest ways to pay off your auto loan fast but it definitely is one of the trickiest. First off, you will have to get in contact with your creditor that gave you your auto loan and then find out if you are eligible for refinancing.
Most creditors will refinance a loan as long as your loan isn’t in default and you have been making consistent payments.
When refinancing a loan, you are looking to: a) get a lower interest rate and b) decrease the amount of time left on the loan. You might want to consult a professional before going to your loan agency so that you are prepared with all necessary paperwork and information to meet your refinancing goal.
Benefits of Paying Off Your Loan Quickly
When you pay off your auto loan in a shorter time period than your creditors expect, you can be rewarded in multiple ways.
Your Credit Score Improves
Your credit score is dependent on your ability to pay off debts, as a result, any debts paid off completely will show up positively on your credit history. In addition, you will be given higher marks on your score, which in the end will give you better interest rates in the future and save you money.
When you pay off your auto loan in a short amount of time, you actually end up saving money. This is because you are letting less interest accrue on your principle amount and this can sometimes end up costing more than the actual loan.
Decrease Your Debts
Once you finish paying off your auto loan, that is one less debt you have to worry about and pay off monthly. Your budget will get a breather and you will be able to put more money towards any other larger debts that you still have outstanding.