In Canada, more than half of all loans for new cars are financed for seven years or longer. Because car loans can be such a huge financial burden for vehicle owners, many people are looking for ways to save money when buying a vehicle.
One way you can do this is by paying off your car loan early. Do you want to learn more about the different strategies that allow you to pay off your car loan sooner?
Keep reading this guide for the top tips to follow if you want to pay off your car loan and save money on your vehicle.
When Can I Pay off My Car Loan Early
Start a Bi-Weekly Payment Schedule
One of the most common tips that you can follow to pay off your car loan faster and save money is to start a bi-weekly payment schedule. Rather than paying your full loan payment once each month, you can split the payment in half and pay it twice.
While this may not seem like it would make a difference in your loan payments, it will help you shave a few months off of the life of your loan. This is because you will end up making 26 half-payments a year, which equates to 13 full payments.
Starting a bi-weekly payment schedule will give you an additional payment each year and can help you pay off your loan months sooner than you otherwise would.
Plus, this tip can even help you improve your credit score. Rather than paying a larger monthly bill, paying your bill twice as often will help you manage your credit utilization ratio. Make sure your lender will allow you to make multiple payments each month before you use this strategy.
Round-Up Your Payments
Another important tip to follow is to round up your payments whenever possible. Most people recommend that you round up your payments to the nearest 50. For example, if you are paying $215.00 each month for your auto loan, paying $250 will help you pay off your loan faster.
An extra $35 each month will likely not affect your finances too much, but it will save you months on your loan which can save you thousands of dollars in interest throughout your loan.
If you can afford it, round up your payments whenever you can!
Repurpose Unexpected Money
There are many times throughout the year that you may receive unexpected money! Whether this is from a tax refund, a bonus or raise at work, or even money given to you as a gift, you can repurpose this money to pay off your loan.
While it may be tempting to spend this money on fun things, like eating out, using it to pay off your car loan will provide you with much value!
It will allow you to save months on the term of your loan and can save you thousands of dollars over a few years. Once your loan is paid off, you will have much more money to spend throughout the month!
By using your fun or unexpected money for your car payment now, you will have more money to spend on fun things once your loan is paid off.
Make Extra Large Payments When Possible
Not only should you round up your payments, but it is also recommended that you make extra-large payments towards your loans when possible. This is especially important if you are unable to round up your monthly payments!
Many people will save up their extra money to pay an extra couple hundred dollars on their loan. You can do this once a year to save money on interest.
It is also recommended that you make this larger payment as early in the loan as possible. The earlier you pay this large amount, you will save even more in interest and you will pay off your loan even faster.
Do Not Skip Payments
With any type of loan, you must never skip your payments. While this is sometimes acceptable from your lender, it is something that will cost you more money in the long run!
While it can be tempting to skip a payment and pay more later, it will end up lengthening the term of your loan and costing you more money in interest.
Something else you can do to save money on your car payments and pay off your loan faster is canceling any add-ons that you have with your loan.
When you buy a car from the dealership, you may agree to include additional things in your auto loan without realizing how much they will cost you in the long run.
For example, these include service contracts, warranties, and more. If your car is running smoothly and you don’t need the extra protection from these add-ons, you can cancel them to decrease your monthly loan payment.
This way, you can pay more towards the principal of your vehicle loan and reduce the total amount of interest you will pay throughout your loan.
Earn Extra Money
One reason why many people struggle with their loan payments is that they have a fixed income. It can be difficult to cut expenses or make larger payments on your loan if you simply don’t have room for it in your budget.
However, there are many other ways that you can earn extra money to go towards your car loan.
For example, many people try to sell things online. Whether you have old furniture that you never use or clothes that are sitting in the back of your closet, you can sell these online.
Having these types of small side hustles will help you pay off your car loan even earlier and will also help you afford the other expenses in your life on a fixed income.
Cut Additional Expenses
If you can cut additional expenses in your life, this is an easy way you can earn some extra money to pay off your vehicle loan. While it may be difficult to cut down on what you already have, these expense cuts are temporary!
For example, you can make a list of your monthly payments, like your cable, and see which ones you can live without for a while.
You can also cut down on other expenses, like entertainment, shopping, or even eating out. This will free up new money that will make it easier to pay off your car loans.
As was mentioned before, paying off your loans will save you more money in the long run and will make it even easier to afford these expenses in the future!
Ask About Refinancing Your Loan
Refinancing your loan is another easy way that you can save money on your loan and shorter the term of your loan.
Refinancing allows you to negotiate a new monthly payment for your loan and a new pay-off date. Often, this allows you to get lower monthly payments in addition to a sooner pay-off date.
If it doesn’t, it will not make sense to refinance your loan. Even if you secure a new loan with a lower monthly payment, if you have to lengthen the term of your loan, you will end up paying a lot more in interest over time.
Refinancing your loan is an easy way to save money on interest without adjusting the amount of principal you will pay throughout your loan.
Pay Off Other Debt
Finally, it is important that you also pay off other debt, even if you have a car payment. This is also known as snowballing your debt payments. You can start by paying off loans that have the lowest amount of debt or loans with the highest amounts of interest.
Once these loans are paid off, you can use the money that used to go toward this debt and pay it towards your next debt payment.
When you pay off loans with higher interest rates first, it will save you more money and it will be easier to afford to pay loans for your vehicle.
Paying Off Your Car Loan Early Pays Off
A car loan can feel like a burden that you will never be rid of. However, there are ways that you can cut months off of your debt payment. By following these tips, you can start paying off your car loan early and save thousands on your loan!
Do you want to learn more about auto loans? CarsFast can help! We can help you get your car financing approved in a matter of minutes with better rates, lower payments, and more.
Fill out your online application today to start saving money!