Owning a car can feel empowering, but dealing with an auto loan? Not so much. If you’re dreaming of the day when that car is truly yours and you’re free of monthly payments, you’re in the right place. Let’s break down five savvy steps to help you pay off your auto loan faster and save some serious cash along the way. Ready to slay your loan? Let’s go!
1. Make Bi-Weekly Payments
Switching from monthly to bi-weekly payments is a game-changer. Here’s why:
- More Payments, Less Interest: By paying every two weeks, you end up making one extra payment per year. This reduces the principal faster, which means you pay less in interest overall.
- Better Cash Flow Management: Smaller, more frequent payments can fit more easily into your budget, helping you manage your cash flow more effectively.
Action Step: Call your lender to see if they accept bi-weekly payments without penalties. Set up automatic payments to stay consistent.
2. Round Up Your Payments
A little bit can go a long way, darling. Rounding up your payments to the nearest $50 or $100 can make a significant difference over time.
- Chip Away at Principal: Each extra dollar goes directly toward reducing your principal balance, shortening the life of your loan.
- Less Interest Over Time: The quicker your principal decreases, the less interest you accrue.
Action Step: Calculate your current payment and decide on a comfortable rounded-up amount. Update your automatic payment settings or manually add the extra amount each month.
3. Make Extra Payments When Possible
Whenever you come into some extra cash – think tax refunds, bonuses, or even that side hustle money – consider putting a chunk of it toward your auto loan.
- Reduce Principal Directly: Extra payments go straight to the principal, not future interest, accelerating your payoff.
- Lower Interest Costs: Reducing the principal sooner cuts down the overall interest you’ll pay over the life of the loan.
Action Step: Budget for an additional payment when you receive extra income. Even a small amount can make a big impact over time.
4. Refinance Your Loan
Refinancing can be a smart move if it lowers your interest rate or shortens your loan term without drastically increasing your monthly payments.
- Lower Interest Rate: A reduced rate means more of your payment goes toward the principal.
- Shorter Loan Term: While this can raise your monthly payment slightly, it can save you a lot in interest and help you own your car sooner.
Action Step: Shop around for refinancing options and compare offers from different lenders. Ensure there are no prepayment penalties on your current loan before refinancing.
5. Avoid Loan Extensions and Deferrals
It might be tempting to extend your loan term or defer payments during tough times, but this can cost you more in the long run.
- Increased Interest: Extensions and deferrals add more interest to your loan because you’re paying over a longer period.
- Prolonged Debt: These options keep you in debt longer, delaying the financial freedom you deserve.
Action Step: If you’re facing financial hardship, consider other options first, like adjusting your budget or seeking financial counseling. Use extensions and deferrals as a last resort.
Wrapping Up Your Auto Loan Journey
Paying off your auto loan faster is all about strategy and consistency. By making bi-weekly payments, rounding up, making extra payments, refinancing, and avoiding loan extensions, you’ll be cruising toward financial freedom in no time.
Remember, every little bit helps, and staying dedicated to your goal will get you there. Keep your eye on the prize and celebrate each milestone along the way. You’ve got this!
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Please leave a comment below or let me know any questions you have. I’d love to hear what you think!
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Tiana Hopkins
February 16, 2018 at 12:43 (7 years ago)Hello I just watched the video on paying off car loans fast. I was wondering how much do you suggest putting towards the principal? What percentage?
Thank you in advance
Tara J.
February 16, 2018 at 12:46 (7 years ago)Hi Tiana! Great question…
You should put all of your disposable income towards your debt. Whether you have $100 or $1,000 left over after you have budgeted for your monthly expenses, it should ALL go towards debt as a principle-only payment. Does that help?