Approximately 70 percent of people who purchase cars do so with the help of financing. And while not many things in life are more satisfying than a new car, an auto loan represents a significant debt to repay. It is also quite normal to see loan terms five to six years long. The good news is there are a number of strategies you can use to pay these loans off much quicker and potentially save yourself a load of money.
Make Bi-Weekly Payments
One cool trick that will not cause many sacrifices to you is to divide your monthly car note by two and pay this amount every two weeks. This technique will cause you to make 26 half-payments in a year’s time versus the 12 monthly payments you would make otherwise. In effect, you will be adding an additional month of payments for the calendar year.
Bi-weekly payments will also cause the balance of your car loan to decrease a bit faster which will provide you with a corresponding decrease in interest payments.
This one step will not make a significant difference in the time it takes you to pay off a car loan but it is a good habit to pay your loan on a regular basis. For increased benefit, you can combine this method with one of the other suggestions in this article or increase the amount you pay each two weeks.
Check Refinancing Options
It is possible your credit score has improved since you drove home in your new car. A credit score improvement is more likely if you have paid your car note on time each month since making the purchase.
A better credit score is likely to earn you a better interest rate when you refinance. This will begin a domino effect that includes a lower monthly car note. You should now be able to pay more than your monthly note and decrease the amount of time necessary to rid yourself of the debt.
Utilize Extra Pay Periods
This method is similar to the bi-weekly payment method. Many people who get paid weekly figure they get paid four times each month. However, there will be four months during the year when you receive five paychecks.
Likewise, if you earn your paychecks bi-weekly, you are used to getting paid twice per month. You will receive three paychecks in a month twice each year. It is tempting to spend this extra money having fun but it will benefit you greatly in the long run if you use it to pay down your auto loan debt. The more of this money you commit to paying off your car loan the faster you will be finished with the loan altogether.
Another fairly effortless way to increase the speed in which you can pay off an auto loan is to round up your monthly payments. For instance, if your monthly car note is $270 per month. Paying $300 each month will cut an extra $360 from what you owe for your vehicle in one year. The savings extend further because this will then become money you no longer have to pay interest on. You could enhance the benefits of this method by increasing your monthly “overpayment” by a flat rate like $50 or $100.
Snowball Your Debt Payments
This method requires you to think in terms of multiple monthly debts for which you are responsible. This method is one that is often suggested by the debt exerts at LendVia for people with excessive credit card debt. Step one is to do what is necessary to completely pay off the lowest debt you owe. You can then take the money you were using to pay this debt and apply it to the next highest debt you pay each month. You will do the same with the next debt once this debt is fully paid off and continue in this fashion until all your debt has been wiped out.
Snowball debt payments will work well for you and you can choose to first start paying the debt with the highest interest or choose instead to pay on the debt that can be completed the fastest. The only way snowball debt payments will not work for you is if you continue to add debt to your personal portfolio while trying to pay off the ones you already possess.
Make Use of Tax Refunds and Bonuses
There is probably one theme that is beginning to become clear to you: You can make a real difference in how long it takes you to pay off a car loan if you regularly pay extra money on the loan. One good opportunity to do this is when you receive a loan at work. This will usually not be a lot of money and you have already demonstrated the ability to live a normal life without the use of this money. Adding this extra money to your car payments can equal a significant benefit to you over time. Other opportunities to pay extra money toward your car note include income tax refunds and end of the year bonuses at work.
A Second Job
You can pay down your car loan quickly with the money you earn from a second job. Another benefit is that you will likely be too busy to spend a lot of money on entertainment. You should find a second job that you enjoy and does not cause you enough fatigue to negatively affect your life. Examples include dog walking, writing, bartending, or some other job that can add a little fun to your life.
A new car is just the thing to break the monotony of life and provide you with both excitement and a sense of accomplishment. However, a car note is a large responsibility that could easily cause you financial hardship if you are not careful. The seven methods above will help you better manage your auto loan and pay off this debt in less time than you would have been able to otherwise.