How to pay off a car early and save money
Car loans require you to make regular repayments over a set period of time to pay off the cost of the loan.
When you sign up for your car loan, you choose the loan term that best suits your situation, however, you may find that after a few years, your financial situation changes, and you may be in a position to pay off your car loan sooner.
Check your car loan
Before paying off your car loan early, it’s important to first check the terms and conditions of your loan.
Different lenders offer different car finance options, and the terms and conditions can differ for each. Some car loans may allow you to make additional payments or pay off your entire loan early, though they may also include early payment fees or penalties for paying off the loan before the loan term is complete.
Reading carefully over the terms of your loan contract will ensure you don’t get caught out with additional fees, as the cost of these may outweigh any potential savings from paying off the loan early.
You also need to consider whether it fits within your budget to pay off your car loan early. As well as your individual financial situation, this may depend on how much is left on your loan, and how long until your loan term ends.
Different ways to pay off your loan sooner
There is more than one way to pay off your car loan early, so it’s worth considering what best suits your budget.
One way to pay off your car loan sooner is by adding to your regular repayments. Rounding up to the nearest hundred dollars is an easy way to pay a bit extra on each repayment without stretching the budget too far.
Another way to help pay off your car loan early is to make additional lump payments throughout the year. If you get a good return at tax time, consider putting that extra money towards your car loan.
Something else to consider if you want to pay off your loan early is to change your repayment frequency. By using a car repayment calculator, you can see how changing the payment frequency can affect your remaining loan amount and interest costs. Switching your payment frequency from monthly to fortnightly works out to additional payments each year.
Paying off your car loan early can help you save money in the long term, but you need to be in a secure financial position to do so, without putting any stress on your finances.
You can save on interest
On top of the total amount of your loan, you also pay interest on your car loan for the duration of your loan term. When using a car repayment calculator, it will give you an idea of how much interest you might need to pay on your car loan. The interest on your car loan can depend on various factors such as the cost of the car and your credit score.
Interest can add a significant amount to the total cost of your loan, so reducing this as much as possible will save you money. One way to reduce the total amount of interest you pay is to pay off your car loan early.
The amount of interest you pay each month can decrease as your remaining loan balance goes down, so if you’re able to pay off your car loan early, either through additional payments or a lump sum payment, it will reduce how much interest you would otherwise pay.
Improve your financial situation
For many people, clearing your car loan debt can help improve your financial situation.
Paying off your car loan early may free up money for you to put towards other expenses, whether that’s paying off other debts or building your savings.
You can also improve your credit score by paying off your car loan early. Even if you have bad credit, car finance is still an option for you, though you may end up paying a higher interest rate. Improving your credit score puts you in a better position to get lower rates if you refinance your current car loan or need to take out another loan in the future.
There can be numerous benefits to paying off your car loan early. If it’s something you’re considering, speak with a finance specialist at 360 Finance.
