Unless you’ve built up a lot of wealth, you’re going to need to get a loan to buy a new car.
The average new car loan is over $33,000, and over $25,000 for used cars. Car loans make up a huge portion of most Canadians’ debt, but there are things you can do to get your loan paid off early.
To pay off a car loan early doesn’t just give you financial breathing room; it also boosts your credit and prevents you from paying more than you should for the car. In this post, we’re going to give you a few tips on how to pay your car loan off early.
These simple tips and strategies will have you making bigger loan payments more frequently. Keep reading, and you’ll have your car paid off sooner than later, giving you the financial freedom that we all desire.
Why You Should Pay Off a Car Loan Early
Wanting to pay a car loan faster and having a lender that allows you to are two different things. Some lenders don’t allow their borrowers to stray from the terms of the loan because it means less money for them in the long run.
Before you apply for a car loan, always check with the lender to make sure you can actually make those extra payments to get the car paid off early. So long as your lender doesn’t have early payment penalties, you should be fine to pay your loan off at your leisure. At Cars Fast, we have flexible loan terms that put the power in your hands, so you won’t have any extra fees hanging over your head.
Paying off your loan early is good for your credit in the most basic way. The less debt you carry, the better your credit is – it’s as simple as that. If you’re looking to apply for loans in the future, lenders will look at your debt to income-ratio, so you always want that to be low.
Once your loan is paid off, you’ll own your vehicle outright. We’ll transfer the title over to you as soon as the terms of the loan are satisfied.
Refinancing the Loan
Refinancing a car loan only makes sense if the loan terms are better for you afterward. The most common scenario for refinancing is when the borrower’s credit has improved since the initial loan terms were set. This should always be the case if you’ve been making full, on-time payments every month.
You’re trying to pay off the loan quickly, so when refinancing, look for a shorter contract term with better interest rates. Your monthly payments will be higher, but you’ll pay less over the course of the entire loan.
Making More Frequent Payments
One of the best methods for paying off a car loan is to make your payments more frequently. Instead of one payment every month – 12 per year – do 26 half payments every two weeks, and you’ll end up doing one extra payment per year. You’ll pay the loan off sooner and pay less interest as a result.
It’s easy to get used to a more frequent payment schedule. Before long, you’ll really start noticing the loan dropping down to a more manageable number that doesn’t seem so daunting.
Round Up On Your Payments
The length of your car loan is a crucial factor in determining your monthly payments. If you take out a loan for $30,000 over 72 months, you’re going to be paying $416 per month. By rounding up to $450 or $500 per month, you can have the loan paid off in 66 or 60 months. That’s 6 months to a year faster than the original terms of the loan.
The difference on a monthly basis will feel inconsequential – less than $100 – but when you take the long view, it makes a huge difference. What’s great is that you don’t have to go out of your financial comfort zone to make it work. Pay whatever extra amount that you can and reap the benefits down the road.
Making Extra Payments
Making lump payments when you come into money will have a significant impact on your ability to pay off your loan early. If you get a work bonus or have some cash saved up, for instance, you can put it straight on your loan and get ahead of schedule.
Theoretically, you could save up enough to pay off the loan in a single lump sum. By combining things like tax refunds, bonuses, pay raises, and any other additional streams of income, you can easily get your loan down to basically nothing.
The Snowball Method
The snowball method of paying off debts involves strategically paying your smallest debts first. Once that first debt is paid off, you take the money you were dedicated to it and put it towards your next smallest debt. Keep doing this until you only have your car loan left.
With no other debts to focus on, you can dedicate more of your income to paying off your car loan. Overall, this is a great way to tackle your debts and put yourself in a great position financially.
There are lots of things you can do to find money to pay a car loan faster. If you’ve got an extra room in your home, for instance, you can rent it out on a room renting service like Airbnb or VRBO. You can also sign up for a ride-sharing service like Uber or Lyft.
For those with lots of clutter around the house, start selling those old items you no longer need. Not only does it help you raise funds, but it’s a great opportunity to take a more minimalist approach to life.
Talk to the Best Lender in Canada
If you want to pay off a car loan early, you need a good loan in the first place. At CarsFast, we’ve helped over 15,000 car buyers find their dream car. We work with a huge network of dealers across the country and approve people with all types of credit.
To learn more about what we do and to apply for your loan, contact us today.