After a mortgage, an auto loan is usually the biggest financial responsibility the American adult faces. Car loans typically last for 72 months on average. Follow these steps if you’re thinking about finishing your auto loan early.
Check for Clauses on Your Contract
It’s quite common for lenders to include early repayment fees in the fine print because it limits their earnings should you decide to make a balloon payment on your car. Review your contract to see if there are penalties involved if you pay off the loan early, and if so, how much? You might still be able to enjoy some savings even with fees involved, depending on how much quicker you could finish with the payments.
Pay Every Two Weeks
At first, it’s easy to assume that paying half every two weeks is the same as making one monthly payment. But most people often forget that each year has 52 weeks, which translates to 26 half-month or 13 full-month payments! By changing your payment schedule to biweekly, you are essentially paying an extra month in a year.
Work on Earning More Money
The more money you earn, the more you can save and put toward your auto loan payments. Consider getting a second job until your car has been paid in full. Resist the urge to splurge all your bonuses and tax refunds and make a large lump sum toward your auto loan at least once a year. This reduces your remaining principal and thus lowers your interests.
Stop Acquiring More Debt
Getting out of debt cannot be accomplished if you’re still using credit. While it’s okay to swipe your credit card from time to time, make sure it’s only for expenses that you can afford. It’s also often not a good idea to take on a mortgage while your car hasn’t been paid off completely.
Think About Refinancing
Some people advise against refinancing because of the negative effects it can have on your credit, but there are cases where it makes more sense, such as if you’ve received a pay increase that lets you refinance for a much shorter loan term. Current market situations sometimes allow you to refinance for lower interest rates, especially if your credit score has improved recently. This excellent guide from RateGenius.com discusses how to refinance your car loan without affecting your credit.