6 Ways to Pay Off Your Car Loan Faster

After researching makes and models, comparing prices and narrowing down your choices you’ve finally determined your dream car. Hopefully, you’ve put as much effort into finding the best car loan as you have in finding the right ride!

Now that you understand your fees and interest rates (and if you’re still unsure, consider seeking independent financial advice) you’re under a financial contract to pay off your car loan. That’s a big obligation - but don’t worry. Here are 6 ways you can manage your finances, pay off your car loan faster and save interest at the same time.

1. Increase your repayment frequency

If you have a monthly repayment schedule, you might consider halving it and making two payments a fortnight. Over a year, this equates to 26 half-payments, or 13 full monthly payments. That additional monthly repayment will help to shorten your overall term length and save you money on interest. 

Not only that, but smaller fortnightly payments can feel more manageable, which helps to take the stress out of paying back your car loan. Plus you’ll be able to avoid any penalties associated with late payments. 

2. Round up

When you secure your car loan, your lender will automatically divide your loan repayments for you. And while it’s unlikely that your repayments will be a perfectly round number, even if they are, rounding up further will help save you money in interest as well as time spent in debt.

For example, if you borrow $10,000 at a 10% interest rate for 60 months, your monthly repayments work out to $212. After 60 months, you would have paid $2748 in interest.

Yet if you round your payments up to $250 per month, you’ll shave 11 months off your loan repayment time - and save $539 in interest!

3. Make one extra large payment per year

Similar to how rounding up your payments reduces your car loan term, making one large payment per year decreases the amount of time you have to pay off your loan - which also helps to save you money in interest. It’s the one-off version of rounding up.

For example, an extra repayment of $500 on a 60 month $10,000 loan at $10 interest can save you one month of repayments and $469 in interest. If you’re someone who, come wintertime, likes to hunker down indoors, it might pay to put money aside during those cold months.

That way, you can make a one-off payment on your car loan right before summertime rolls around.

4. Make use of additional income

Another form of extra large payments is to make use of surprise windfalls that come your way (think tax refunds, bonuses or a lucrative new side hustle). Using that money to make extra loan repayments is also a way of covering yourself, should you miss any future repayments. 

Not only that, but extra payments help lower the principal balance on your loan, which reduces accruing interest and saves you money.

5. Adjust your budget… or use your car for extra income

Now that you’ve taken out a car loan, it’s worth making sure that your budget matches your current lifestyle. Consider budgeting your income and prioritising your car loan repayments, which might mean cutting back on how much you spend on clothing or

entertainment, so you can direct those funds towards your car loan.

Of course, if you can’t live without those new pair of shoes or Gold Class movie tickets, you might want to think about using your car as additional income. If you have free time to spare, you can join a ridesharing service such as Uber. That way, you can put the extra money you make towards your car loan.

6. Consider refinancing

One final way to pay off your car loan faster is to refinance your current loan, which means negotiating a new monthly payment and pay off date with your lender. It only makes sense to refinance your current car loan if you can negotiate a lower monthly repayment and shorter term (pay-off date). That way, you’ll save money on interest.

Because saving money on interest is tied to having a shorter loan timeframe, paying off your car loan faster helps to save you money. Moreover, it increases your time spent living debt-free. From rounding up to finding ways to budget your finances, putting your money towards paying off your car loan faster is doable.

Plus, it makes that big loan obligation seem much more manageable - which might be almost as satisfying as getting behind the wheel of your new car! So if you’re keen to get some figures together, check out our loan repayment calculator to work out your monthly payment based on vehicle price and loan structure.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.