Getting a new car is always fun. You get the experience of having a new vehicle that fits the unique nature of your own personality. Unfortunately, dealing with car payments is a not so fun part of the process.
Fortunately, there are ways to substantially decrease the amount of time you will have to continue paying your automobile loan. This article is going to offer several tips you can try today to get you one step closer to being free from car payments.
Top Six Strategies For Quickly Paying Off Your Car
One of the best strategies worth trying is making biweekly automobile payments. Cars loans typically use a process known as simple interest to calculate your payments. The way this process works is the amount of your payment that goes towards the principal amount changes over the life of the loan.
During the early stages, the vast majority of your payment goes towards interest only. As the loan matures, the amount of principal payment increases exponentially until the loan is paid off. By making biweekly payments, you are effectively increasing the amount of principal payment being applied to your automobile loan. This results in significant savings and reduces the amount of time your loan will take to be paid off.
Round Your Payment Amount Up
For those on a tighter budget, rounding your automobile payment up may be a more viable solution. Let’s say that your automobile payment is $280 a month. Try applying an extra $20 as principal to each of your automobile payments. Over the course of a year, you can expect to have made an extra $240 in payments.
In this example, the amount is equal to almost an extra automobile payment a year. However, the main advantage is that this additional payment is going straight to your principal amount. This helps speed up the loan payment process for all future payments as well by reducing your interest amount.
Consider One Extra Payment
Another option worth considering is making one extra payment a year. This strategy is particularly effective around tax time for those of you who are expecting a refund. This one payment can significantly reduce your total principal amount. The strategy is even more effective if you have been taking advantage of rounding up your payments over the course of the year as well.
Consider Special Discounts
One option worth considering that can save you money is special discounts offered by your lender. For example, many loan companies offer a small discount if you enroll in paperless billing. There are also many other discounts like good students, military service member discounts, and more. Talk with your loan provider to see if they have any special offers that can help you save money on your loan.
Don’t Forget Found Money
Found money may not be much on its own. However, the extra $20 bucks you may find in your washer can go a long way in helping you pay off your auto loan. Whenever you have extra money laying around, consider applying it to your loan as a one-time payment. Whatever amount you can reduce your principal balance will only help you pay it off that much faster.
Another strategy that is worth considering is refinancing. Refinancing has the potential of saving thousands of dollars due to interest rate reduction. This strategy is particularly beneficial for those who took out their car loans with less than perfect credit.
These type of car loans are called subprime loans. They often have interest rates as high as 20%. To maximize your savings, try to refinance your car once you have lowered its loan to value ratio to a point that you now have equity in your vehicle.
The reason this process is important is that the more equity you have in your vehicle, the more likely you are to receive a favorable loan rate from your bank. Be careful that you do not extend your loan term any longer than necessary. Even with a lower interest rate, a longer loan term often negates any cost savings.
Remember, paying your auto loan down more quickly doesn’t have to be a difficult process. You can try these six strategies for yourself and start seeing a real difference in your loan balance. After all, there is nothing like owning your own car with no car payment hanging over your head.