Refinance Your Current Loan
If you have been making regular payments, your credit score will increase by a few points.
With a better credit score, you might be eligible to refinance.
Refinancing your auto loan with a new lender is an effective way to get lower interest rates.
When you have a lower interest rate, you will be able to make extra payments in addition to the monthly installments.
These extra payments will be deducted from the principal outstanding, thus lowering the total due.
If eligible, refinancing an auto loan is a sure-shot way to reduce your overall debt.
However, to secure the best refinance deals, double-check:
(a) The interest rates offered
(b) Options for shorter terms (and lower interest rates)
Make Bi-monthly Payments
Most auto loans set a monthly installment for the agreed term.
Still, there is a nice trick for quickly repaying a loan without needing to get approval.
Instead of making monthly payments, split the total into half and make payments every 15 days.
This might sound confusing, but, technically, you will be paying 24 installments a year instead of 12.
It means your principal outstanding is constantly decreasing, thus the interest accumulated is also lower over time.
This is one of the ways you can clear a loan way before the end of term, and help you save a lot of money which you would have otherwise paid as interest.
A Higher Down Payment
If you have the necessary funds, you can put in a higher down payment than what the lender even requires.
Of course, a higher down payment lowers the overall loan amount you will need.
You can choose a shorter term and can also get a comparatively lower interest rates when you agree to pay a larger down payment.
Rounding Up Payments
Instead of paying exactly what is due, it is a good idea to round up the monthly installments.
This way, you will be able to clear a large chunk of the principal over time, without too much immediate burden.
For instance, the $20,000 loan with an APR of 6% for 3 years equals a monthly payment of $608.44. You can round it up to $650.
If you paid exactly what is due for 3 years, your total interest would be $1,903.79.
However, if you round it up, your debt would be clear in almost 34 months, thus saving you 2 more months of interest which really adds up over time.
Making a Large Payment Once a Year
If you have received a bonus or any extra disposable income from any source whatsoever, it is a good idea to try and clear off a large portion of the principal outstanding from existing debts.
This has a similar effect to the rounding-up payments idea, but you’re doing it once a year instead.
Making a substantially larger payment will lower the total outstanding amount, thus lowering the monthly interest rate.
If you are able to make one or more large payments, chances are that you will be able to clear your auto loan much sooner than the agreed term, while saving a hefty amount on interest in the process.
Opt for Avalanche or Snowball Payment Tactics
These are two popular methods of managing and paying off your debts.
The avalanche method gives preference to first clearing debts with the highest interest rates.
This method is the best one for saving money and time overall.
On the other hand, the snowball method suggests clearing the debts with the lowest interest rates first, “getting them out of the way” before tackling the higher-interest rate debts.
This method can be used as a motivational tool for debt repayment and make the overall debt management easier to deal with.
For either of the methods, all you need to do is list all of your debts in the desired order (high to low or low to high).
Then, focus on how you wish to approach the repayment plan – avalanche or snowball.
Based on your preference, arrange the necessary funds and start clearing your debts, one or more installments at a time.
By merely switching the order of your debt payments, hundreds of dollars can be saved, and you can gain more control over your payments.
Cut Down On Other Expenditures
Not many people wish to do this but cutting down your daily and monthly expenses can help pay off your auto loan faster.
When in debt, every bit helps, especially when it helps lower the total principal outstanding.
Check out your habits and overall spending and see where things can be tightened.
This doesn’t have to mean big compromises in your lifestyle, but a bit of cost-cutting here and there can go a long way towards clearing your auto loan faster and it really does add up.
In most cases, clearing an auto loan faster than the term depends on the borrower’s intent, organization and motivation.
There are many available options, but are you up for the commitment? If you have decided to clear your auto loan faster, we recommend that you try using the tips above for a head start.