Are you in the driver’s seat of your car loan? Regular car loan health checks can help your hard-earned money go the distance. Read on to learn more.
Why is it important?
Just like taking care of your car is crucial, it’s also important to check that the car loan you’ve taken out is in good health. As your personal and financial goals change, the key thing is to ensure you’re your car loan aligns with your life – and this is where regular ‘health checks’ come in.
What do you need to look at?
Taking closer look at your current financial situation is good place to start – especially if you’ve had your car loan for a year or more. Maybe your expenses have increased in the meantime, or your short and long-term goals have changed. That means a little realignment might be in order.
Once you have a clear view of what your finances look like, the next step is to take a closer look at your car loan. The goal here is to make sure the car loan is still aligned with you, and hopefully, find ways to pay it off faster.
Remember: the longer the term of your car loan, the more it will cost you in interest. So, get your contract and take note of the following:
- Repayment amount: How much of your income is going towards servicing your car loan? Can you afford to increase repayments (and pay it off faster)?
- Interest rate: Part of your monthly car payment is going directly toward repaying the money you borrowed, but part of it also goes to interest. What interest rate are you currently paying?
- Loan term: How long is left to pay the balance on your loan? As we said, if you ramp up your payments, you can shorten the life of your car loan – and pay less interest overall. But first, make sure there are no penalty fees for early repayment. In other words, check the…
- Terms and conditions: Not all car loans are created equal. For example, many allow early repayments without a penalty, while others don’t.
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What’s next?
Ready to get back in the driver’s seat of your car loan? Now that you had a refresher of your car loan settings, here some key steps to consider:
- Increasing your repayment – Provided there are no penalty fees for early repayment – and you can afford it – upping your repayment amount can be a good idea. It will help shave some time off your loan and reduce your overall interest costs.
- Pay more frequently – When you set up your car loan, you may have chosen to opt for standard monthly repayments. But if you receive weekly or fortnightly salary payments, you could move your car loan repayments to match. Moving from monthly to fortnightly would result in one full extra payment in a calendar year, provided you pay half of your scheduled monthly payment every two weeks.
- Make a one-off payment – Maybe you don’t want to commit to higher regular payments, but have money available in the bank. Making a one-off lump-sum payment can also be an option, for example if you have received a windfall or a bonus at work.
- Consider refinancing – If you’re looking for lower interest rates or better conditions, you can have a look around at what’s available with other finance providers. Refinancing is not for everyone, and it’s crucial to understand the terms of your car loan before considering a move, including balance owing compared to the value of your. You may even find there’s no need to move after all.
Remember: regularly reviewing your car loan (or any loans, for that matter) could save you money and speed up the time it takes to get debt-free.
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.