How to pay off a car loan quickly
Most of us don’t have the privilege of paying cash upfront for a vehicle and this is what makes car finance providers a commodity. This can be frustrating, however, because our only option then is to pay more for a car than its actual worth. We’re stuck paying interest and we must commit to monthly premiums that take lump sums out of our earnings.
The good news is that it is possible to pay off a car loan faster. If it’s within your means, you can decrease your loan term and possibly save on what would have paid over a longer run.
In This Guide:
- Why would you want to pay a car loan off faster?
- How to Pay Off a Car Loan Faster
- Remember to Look for Early Termination Fees
- It All Starts with the Best Vehicle Finance
Why would you want to pay a car loan off faster?
Paying back your car finance provider early can pose a few benefits. For example, you can:
- Possibly save on interest: When you agree to a car loan, you’ll commit yourself to pay both the principal (the actual amount you’ve borrowed) as well as the interest rate and any additional fees which are set against the cost of borrowing. Depending on the conditions of your loan contract; it’s possible that you can pay less interest if you pay off your principal sooner rather than later.
- Own your vehicle sooner: When you ask for vehicle finance assistance, then the car you are purchasing will only become rightfully yours once you have paid off your loan in full (with the interest). Until then, it belongs to the financial institution in question.
- Free up funds for other expenses: If you manage to pay your car loan off early, then you’ll have extra funds every month to do with as you see fit. You’ll finally have the opportunity to save for that much needed holiday or you can pay off another loan faster.
- Have peace of mind: You’ll sleep much better at night knowing that you don’t have to make sure that ends meet. You will also have peace of mind knowing that your debt is paid off and that you have your very own asset.
How to Pay Off a Car Loan Faster
Some may say that paying off a car loan faster is impossible, but we disagree. You can implement the below to save on interest and pay your finance provider what you owe before your contract ends.
Make split payments
Not many are aware that you can split your loan contributions to pay them in portions instead of paying a monthly lump sum. This means that you can split your loan contribution in half and contribute every 2 weeks instead of just once a month. At the end of the year, you’ll have made one extra month’s repayment.
Round up your premiums
Instead of paying the exact monthly figure to your loan account, round the sum up. For example, if the repayment is R4,565 per month, then pay in R5,000. An additional R435 per month equates to R5,220 per year.
Pay in extra when you can
You can use bonuses, tax refunds or any extra money that comes your way to pay towards your car loan. The interest you’ll earn by putting the funds into a fixed savings account or even an investment account will generally be lower than the interest you’ll pay towards your debts.
Refinance a loan
It’s not uncommon for individuals to pay off one loan with another. Typically, this involves using a low-interest loan (such as a home loan) to pay off a loan that features a higher interest. This strategy should only apply to those who have done proper research into loan refinancing and are 100% certain that it will, indeed, be beneficial to them.
Remember to Look for Early Termination Fees
Some loan agreements have conditions where you can be penalised for paying off a loan sooner than the agreed term. These early termination fees are generally equivalent to three to four month’s interest.
If your car finance agreement stipulates these terms, then you’ll need to calculate whether it’s worth paying your loan off early. That is, will the cancellation fee add up to more than the sum of the interest that you’ll save on?
If it doesn’t, then it makes sense to go ahead with your plan to pay off your car loan faster. If the cancellation fee is more than the interest you’ll save, then it makes more sense to put your extra funds to better use. Perhaps you could pay off other debts or invest your money wisely for a good return?
It All Starts with the Best Vehicle Finance
The best way to pay off a car loan faster is to search for a financial institution that will provide you with the lowest rates – preferably with no cancellation fees stipulated in their terms. This gives you more flexibility each month when it comes to finding the extra cash to pay your car loan off faster. Compare vehicle finance deals to see what rates are available.