Save Money On Interest
The most common reason to pay off any loan faster is to save on interest. At the end of 2019, the average interest rate on an auto loan was 6.11%, and the rate can be much higher for borrowers with poor .
A 60-month auto loan at 6.11% interest on a $20,000 car will cost $3,261 in total interest. All other factors remaining the same, a $35,000 car will rack up a whopping $9,890 in interest.
Estimatedmonthly payment: Total interest paid over life of loan:
The takeaway here is clear the faster you can pay off an auto loan, the more money youll save.
Even if youve managed to secure a relatively low interest rate, being in debt can be like walking around with a weight on your back. Its always there in the back of your mind, dragging you down and darkening your outlook on life. The sooner you become debt-free, the sooner that burden is lifted.
Round Ups And Extra Repayments For Paying A Car Loan Off Early
Using the previous example, a $25,000 car loan at 5% p.a. will cost $471.78 per month over five years. Lets say we round up to the nearest increment of $50, in this case $500. This will save you about $213 in interest and reduce your loan term by three months. You can do this manually by adding the amount on top of your direct debit or ask your lender if you can make such repayments without penalty.
An alternative is to make periodic once-off payments to reduce your car loan term. These may be extra money you get from bonuses or tax returns, which you can then use to reduce your overall car loan term.
The Balloon Payment Is It Really Paying Off A Car Loan Faster
Another method to pay off a car loan early is to opt for a shorter loan term and a balloon payment. A balloon payment is a portion of the car loan thats reserved for immediate payment at the end. For example, if you are approved for a $25,000 car loan at 5%p.a., you can opt for a 40% balloon payment over three years and pay $284.80 per month. The same loan will cost $471.78 per month over five years. However, you will need to come up with $10,000 at the end of the loan term to close out the loan.
This is a significant sum, considering in this example you needed to borrow $25,000, and can cost you more in interest if you are forced to refinance the amount with another personal, unsecured loan.
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How To Find The Extra Money To Pay Off Your Car Faster
The first step to finding extra money is to make sure your finances are in order. Check out our popular post on the 70% rule and get the basics you need today. Once you’ve done that, you’ll know exactly what you need to do and how much money you need to make to hit those payoff goals!
Here are some of our best tips for making or saving some extra dough you can put right toward that loan!
- Spending Freeze A spending freeze is a great way to save some cash quickly! With a simple seven days of no spending, you’ll be shocked how much moolah you’ll have available to put towards paying your car off faster. Do a few spending freezes a year and really get the early payoff rolling!
Tip #: 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. Its 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 youll be saving on your car loan will feel like a windfall in the end.
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How Do I Find Out My Car Loan Amortization Schedule With Extra Payments +
You can get an idea of your amortization schedule when you use our auto loan early payment calculator. You will be shown just how much you’ll be owing at any period in the life of the loan for both regular payments and accelerated payment plans that use extra payment.
Is there a ‘remaining car loan payoff calculator’? +
Yes, there is a remaining car loan payoff calculator. This auto loan early payment calculator provides you with accurate information about how much money you still have to pay off on a car loan. You will, however, need to supply details on the loan amount, period, and extra payment.
How to pay off car loan calculator faster? +
An auto loan early payment calculator helps you save money by making extra monthly payments. It works when you supply details of the loan term, loan amount, additional monthly payment intended, current payment, and interest rates. You then get a report on how much you save in terms of money and time on the loan.
Why You Should Pay Off Your Car Faster
Whether you’re trying to go totally debt-free or you just want to save money on a high-interest loan, learning how to pay off your car faster can benefit you and your wallet in a big way. Here are some of our favorite reasons why we totally vote for an early payoff!
- Save Money on Interest In most cases, the quicker you pay off a high-interest loan like a car, the more money you save in interest. That’s plenty of reason for us!
- Free Up Money Once your car is paid off, you now have that money freed up in your monthly budget. Helloooo savings account!
- Boost Your Credit Score Depending on your situation , paying off your car early may give you a nice little credit score boost!
Pretty exciting, right?! However, there are some things you need to check on before you start making those budget changes. Keep on reading to get all the deets!
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Increase Your Repayment Frequency
Generally, your car loan requires you to pay principal and interest. The good thing about this is that any extra repayments you make in the first few years of your loan can shorten the life of the loan and reduce the overall interest you pay.
If you cant pay more, though, try to pay more often. There are 12 months in a year, but there are 26 fortnights. If your loan is set up with monthly repayments and you divide these in two and make payments every fortnight, you’ll make the equivalent of 13 monthly repayments every year – that’s an extra month’s repayment. If you do this over the long-term, you could shorten the length of time you are in debt.
Be sure to check your loan with your broker though as some lenders calculate true fortnightly repayments so this does not apply to all cases. And, not all lenders will allow you to make extra repayments.
Early Auto Loan Payoff Calculator
Have an auto loan that you want to pay off sooner? Wondering how much faster you could pay it off by paying a bit more each month? And how much interest you could save in the process?
This Early Auto Loan Payoff Calculator has the answers.
Enter how much extra you want to pay each month, and the calculator will immediately tell you how many months you’ll shave off your loan and your total savings in interest. It can also show how quickly you’re paying down the loan, with the balance remaining for each month until the vehicle is paid off.
This is good information to have if you’re thinking of trading in the vehicle before it’s paid off and wondering how much to knock off the anticipated trade-in value.
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The Thought Of Paying Off Your Car Loan Early And Doing Away With Your Monthly Payment Is Appealing But Should You Do It
Maybe you have a little extra cash each month, or you recently came into a large amount of money. Should you use those funds to pay off your car loan early? There are potential benefits, but also some possible drawbacks, to consider when deciding whether to pay off your auto loan ahead of schedule.
Switch To Biweekly Payments
Biweekly payments simply make more sense for the average worker, who gets paid biweekly. You can schedule your payments to coincide with your paychecks.
Specifically, split your monthly payment in half and set up automatic payments every two weeks. It may seem like youd just be paying the same amount each year. But you really make 26 half-month payments each year, or 13 months worth of payments each year rather than 12.
You get to pay off your car loan early without even noticing the impact on your monthly budget.
You could also pay more than a half-month payment every two weeks to pay off your loan even faster.
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Should I Pay Off My Car Finance Or Refinance
There are many reasons why you might consider paying off your car finance before the end of your agreement, but you need to be confident that you can definitely afford to pay out the required amount. If youre not sure, its worth carrying on with your payments or seeing if an alternative option, such as refinancing, could be more suitable.
If your , you may be able to refinance your car loan to a new agreement with a lower interest rate. Check what rates you are eligible for before you apply to refinance. If you can get a better rate, you could choose a term that suits you, while making sure your monthly payments are an amount you can afford.
There is also the option of taking out a personal loan to pay off your car finance. You could use the loan to pay your settlement figure, which would then make you the legal owner of the car. You would then need to make your loan repayments each month and there would be no option to return the car.
Figure Out The Equity Of Your Car
This is an important step when selling a car with a loan. Equity is the difference between what you owe on your car loan and what your car is worth.
If the value of your car is greater than your loan balance, your car has positive equity. You could potentially have some money left over after the sale.
If the value of your car is less than your loan balance, then your car has negative equity. Youll have to figure out how to come up with the cash to cover what you owe. If you have a good credit score, consider taking out a personal loan. If you wish to purchase a new vehicle, you could add the difference to your new loan.
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What To Know About Paying Off Your Car Loan Early
Paying off a car loan early can be harder than it sounds. Lenders may charge a prepayment penalty, which is a fee for paying off the loan ahead of time. This fee varies for each specific loan and is set by the lender. In some cases, the prepayment penalty may be the total interest remaining on the loan.
Theres no way to get rid of the prepayment penalty once the loan is in effect its part of your contract. Even if you refinance the car, youll still have to pay the prepayment penalty. This is why its important to make sure your lender doesnt charge you a prepayment penalty when you sign up for the auto loan. Youll typically see this in subprime auto loans.
Using The Auto Loan Calculator
- This calculator uses your original loan amount, length of the loan and interest rate to calculate your current monthly payments. From there, enter the number of months left on the loan, then enter how much extra you’d like to pay each month to see how much sooner you’d pay it off.
You can adjust that figure using the slide bar to experiment with how varying the additional payment would affect how early you can pay off the loan and how much interest you’d save. Your results appear instantly at in the blue field at the top of the calculator and just below it at right as you adjust the extra payment figure.
- FAQ: Arm yourself with various scenarios that fit your budget goals
Start by entering the number of months remaining on your car loan, than enter the full length of the loan, in months. If you want to see the effect of making extra payments over the entire length of the loan, just enter the full length of the loan in both places. Next, enter the amount of the loan and the interest rate. The calculator will immediately display your regular monthly payment for the loan in the place indicated. Next, enter any additional amount you’d like to pay each month. The number of months you’ll shorten your loan by and your interest savings will appear at the top of the page.
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Paying Off Your Car Versus Your Credit Cards
When you have multiple debts, it can be a little confusing as to which one to pay off first. In the grand scheme of things, its all about interest charges. The less interest you pay, the better it is for your finances.
The median is just over 19%, whereas most car loans are 16% or lower. The only exception is someone in the deep-subprime level meaning a credit score below a 500. Interest rates for credit scores under 500 average as high as 19.87%.
This means in nearly every case, its more beneficial to pay off your credit cards with high interest rates first, then work on the auto loan.
A great way to prioritize interest rates and streamline your debt-repayment process is to use the debt avalanche repayment method. You channel all your extra cash to the debt with the highest interest rate and pay the minimum monthly payments on the rest of your debts. Once that debt is paid off, channel all your extra money to the debt with the next-highest interest rate. Repeat this process until all your debts, including your auto loan balance, are paid off.
You can also include any personal loans, student loans or any other debt in the debt avalanche process.
When Is It Worth Paying Off My Car Finance Early
Paying off your car finance early can save you money on interest, but it wont always be the best decision. It could be worth paying off your finance early if:
- Paying the settlement figure to clear your finance is cheaper than continuing with your repayments.
- You want to own the car outright. When you finance a car through hire purchase or PCP, you wont own the car until you make all your payments, so paying it off early means you own it sooner. You can then carry on driving it without making payments, or you could choose to sell your car.
- You can afford to pay a lump sum to settle your finance. Make sure you can pay the settlement figure and still have enough money saved in your emergency fund to cover any unexpected expenses. If you use all your savings to pay off your finance, you may find yourself needing to borrow money at a higher interest rate to cover any future emergency expenses.
Instead of paying off your finance in full, you may be able to make overpayments which will help you to clear your debt quicker. Contact your provider to see if you can do this, and also check if you would need to pay any extra charges to do so.
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Refinance Your Car Loan
If youre in a healthy financial position, you might be able to negotiate a more competitive interest rate on your car loan. If you do, try to keep the same level of repayments you were previously required to make so that you can pay off your loan faster.
Speak to your lender and see what your options are but make sure youre not increasing your loan term and dont have to pay extra fees. If you also have a car loan, it may be worthwhile making an appointment to speak to your local mortgage broker to find out if consolidating your debts would be a suitable option for you.
If you need help paying down your debt, speak to your local financial adviser who can help you manage your cash flow and help you outline clear strategies to pay off your loans faster. If you think you might want to refinance your car loan or consolidate your debt, your local mortgage broker can help you find a loan product to suit your unique financial needs and goals.