Saving money on your auto loan is a matter of time. The longer you are repaying the loan the more it will cost you. Most loans have terms of 60+ months and average payments of $550. If you can save just 3 months of payments that is an extra $1,650 that you can use for something else. Here are some tips to pay off your loan early and save those dollars.
Pay Half Your Monthly Payment Every Two Weeks
While it seems like this would end up with the same result, making a half payment every two weeks actually adds up to 13 full payments per year which over 5 years would accelerate you schedule by 5 months. Multiply your monthly payment by 5 and you will see that this little mind trick saves you quite a bit of money.
Every month your interest payment is based on the principal balance that you owe, this means that every dollar you put towards the principal results in a lower interest payments. Round up your payments to the nearest $50. The excess payment should be automatically applied to the principal of the loan and will reduce the overall interest that you pay over the life of the loan.
Instead of just paying what is recommended, round your payments up to the nearest $50 to help repay your car loan more quickly.
Say you borrowed $10,000 at a 10% interest rate for 60 months, then your monthly payment is $212.47. With that payment, you’ll repay your car loan in 60 months, having paid $2,748.23 in interest.
However, if you round up and pay $250 a month, you’ll repay your car loan in 47 months, having paid only $2,214.69 in interest — saving you $533.54!
Make One Extra Large Payment
You may come into an extra amount of cash at certain times of the year like christmas or during tax rebate season. Consider spending some of that extra cash on your car payment.
Let’s say you borrow that same $10,000 over 60 months at 10% interest. If you make an extra payment of $500 a year, you will repay the loan in 49 months, having paid $2,279.35 in interest — a savings of $468.88 in interest.
And the savings just continue. By making at least one, larger additional payment a year, you’ll save even more in interest. Just remember, the earlier you make your big payment the sooner you’ll pay off your car loan.
Refinance Your Loan
You may have entered into a loan with bad terms because of bad timing, poor credit or you were just not aware. If your current loan terms are not favorable to you then talk to lenders like AUTOPAY and see if you can get a new loan with a better interest rate or better repayment schedule. Use a loan interest calculator to see if you will in fact be saving money or to know what target interest rate will need to make refinancing make sense.