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Approximately 44% of American adults currently have an autoloan, which represents a cumulative debt load of more than $1.1 trillion acrossthe country. Average monthly payments for these loans typically range from$350-400 for used vehicles and $525 or so for new vehicles, which is no smallamount when you consider the alternative of owning an older car outright withzero monthly payments!
If you want to be freed from your autoloans for good – at least until your next car, if you choose to go thefinance route again – then there are plenty of ways you can speed up yourpayoff timeline and free up a few extra hundred dollars per month in yourbudget to spend on more valuable expenses or better yet, put into savings.
Some auto lenders charge prepayment penalties for borrowerswho pay off their loans earlier than anticipated, but if your lender doesn’tcharge any penalties for this (or the auto loan interest is high enough tooutweigh the cost of early payment penalties), then here’s what you should do topay off your car sooner:
Round Up Your Payments
Is your payment a weird amount, like $343.12 or $511.97? Ifso, consider rounding up your payments to the nearest $10/$20/$50 amount tomake real progress on repayments. Instead of paying $343 per month, pretendyour minimum payment is $370 per month or even $400 per month. It’s notterribly difficult to pay an extra $20 or $30 per month, it’s easier to factorinto a budget, and it helps you pay off your car loan as soon as possible.
Pay Biweekly
If you’re able to change yourpayment schedule to biweekly instead of monthly, then you’d be effectivelymaking an extra payment each year. Let’s do the math: 52 weeks in a yearequates to 26 biweekly payments, which is equal to 13 months’ worth of car loanpayments. This may not make a massivedifference compared to other methods of early loan payoffs, but it’s still agreat strategy for minimizing the amount of interest you end up paying over thelife of the loan.
Make an Extra Payment
Another way you can pay off your car loan more quickly is by making a large extra payment at some point during the loan’s duration. Some people choose to pay off their auto loan when they’re close to the end (e.g., within $1,000 of paying it off completely), while others engage in the “snowball method” of debt repayments by allocating as much money as possible to the highest-interest debt (or smallest, easiest-to-payoff debt) to eliminate the loan as soon as you can.
Put UnexpectedWindfalls Towards the Auto Loan
Instead of promising yourself you’ll make an extra payment or two at some point over the course of your auto loan, commit to allocating 90-100% of unexpected windfalls towards your auto loan. This could include: raises at work, overtime earnings, holiday bonuses, tax refunds, and other types of “surprise” money that comes your way.
It can feel disheartening in the moment to put that newfound treasure towards debt, but in the long-term, you’ll be incredibly glad you persevered in your personal finance goals and eliminated the car loan instead of splurging on fancy dinners or other non-necessities.
Refinance Your AutoLoan
If you took out an auto loan back when your credit scorewasn’t so hot and it has since improved, you might qualify for a lower interestrate. Check with your auto lender to see what refinancing optionsare available to you – it may just be a 1-2% drop, but this could still saveyou hundreds of dollars on a five-figure auto loan.
Refinance Your Car with MotoRefi
I really like the team at MotoRefi for auto refinancing as well. MotoRefi has car loan rates as low as 1.49%. They can offer these low rates for car refinance because they work with some of the best local lenders to find the best rates.
The process with MotoRefi is very simple and completely online. You can pre-qualify on their secure, fully online website without even having to get off of the couch. And, you don’t have to give them your social security number to start the loan process and to pre-qualify.
Customers who refinanced their car loans through MotoRefi saved an average of $101.02 per month on their car payments. Wouldn’t it be great to have an extra $100 in your pocket each month?
Get a Side Hustle
Last but not least: get a side hustle to supplement your auto loan payments. If your current income won’t allow for rounding up payments or making extra payments, then your best option is to find ways to boost your income through side gigs.
You can drive for Uber or Lyft (this may speed up the depreciation rate of your car, however), find work on Fiverr, deliver food for UberEATS or PostMates, walk dogs through Rover or Wag! or any other side gigs (there are too many to list here).
Auto loans are typically easier to pay off than other types of loans (e.g., mortgage loan or student loans), but they still require a great deal of diligence to ensure you’re paying as little interest as possible over the 36/48/60/72 months you have the loan.
Even if your lender has prepayment penalties, don’t let this deter you from saving a ton of money on interest by following any/all of the early-payoff tricks we discussed above.
