How to Save Money on Car Loan
A lot of people are able to take out auto loans with periods as long as eight years. Car loans are typically one of the most significant financial obligations you’ll ever face in addition to the loan.
The process of paying off your car loan in advance will allow you to remove the monthly installment from your budget and make room within your budget. The longer your loan term will be, the more you’ll have to pay in interest. Therefore, you could benefit from paying the loan off earlier.
Here are five ways to repay your loan before your time expires.
1. Pay half of your monthly payment each two weeks
Another option to pay off the loan on your vehicle early is to split the monthly installment in half and then pay them biweekly. In this way, you’ll pay 26 half-payments throughout the period of the year or 13 full monthly installments.
It may not appear like it’s going to be a big difference. However, you’ll be able to make an additional installment every year which will reduce your overall length by a few months. It could also save you some cash in interest.
2. You can round up your payment
Instead of paying the monthly payment, think about making your payments round such as to the nearest $50.
As an example, suppose you took out a loan of $13,500 with 5 percent interest over a 72-month period. The current monthly installment is about $217. By rounding it up to $250 per month can reduce your monthly payment by more than $330 interest over the course of the loan. It could also reduce the length of your loan to 10 years.
3. Make one more major payment every year
The idea of making an extra payment every year is similar to rounding up your payment every month, however, you’ll pay in one go rather than spread it over the course of the year. It is possible to set aside funds from bonuses, tax refunds, and pay raises to create an enormous lump-sum installment towards the car loan.
The earlier in the loan term you pay your additional installment, the greater you’ll save in interest since your overall amount will be less.
4. Refinance your loan
Refinancing your loans could help you obtain more favorable terms for your loan as opposed to if your credit score and financial standing have changed. It is recommended to negotiate an earlier repayment date, and you’ll probably receive a lower interest rate.
You shouldn’t refinance your loan to extend the term length, regardless of whether the monthly installment is less — since you’ll be paying more total interest. There’s a chance that you could end up upside-down with your loan which means you’re owing more than the value of your car. If you decide to dispose of your vehicle prior to paying off the loan then you don’t only need to sell it or trade the vehicle in. You’ll be required to pay the loan company the amount that is the difference between the worth of the vehicle and the amount of your loan.
5. Make adjustments to your budget
If repaying your loan at the earliest possible time is your top priority it might be worth examining the way you’re spending your money and applying it more towards the loan.
For instance, you could reduce by $25 your budget for entertainment or clothes and use the extra cash to pay for your car. It may not sound like much however, you can be able to pay off your loan a couple of months earlier due to this.
What is the first thing you should be thinking about when making the payment on your car loan on time?
If you are planning to pay off your loan in advance take a look at the conditions to make sure you don’t pay any penalty for prepayment from the lender. Some lenders put these conditions in place since they will earn less in interest when you pay off your loan before the period ends.
It is also important to determine the amount you could save by repaying your loan in advance. This way, you’ll determine if saving money is worth the extra payment and time.
