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4 min read . Published August 17, 2022
Authored by Kellye Guinan. Written by Personal and business finance contributor

Kellye Guinan is a freelance editor and writer with over five years of experience in personal finances. She is also a full-time librarian at the local library, helping the community gain access to information on financial literacy, among other subjects.







Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to manage their finances through providing concise, well-researched, and clear information that breaks down otherwise complex subjects into digestible pieces.









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If your lender doesn't apply a prepayment penalty and you can pay it off faster, this is a great option to save money. It will result in less interest and, once you finish, you should have a few extra hundred dollars left in your budget every month. But getting there can be challenging. There are several strategies you can use to pay your loan off faster. But, even if you can however, it can put you in a worse financial situation if you're not conscious of how you approach your finances. 6 strategies to get rid of your car loan faster There's no one path to paying the car loan ahead of schedule. It is beneficial to alter your strategy. When you've got an idea of what you want to do, you are able to take advantage of a few methods to get rid of your vehicle loan more quickly. 1. Refinancing your loan with a different lender could be a simple method of paying off your loan more quickly. If you decide to take the shorter loan period, you may be able to keep the same monthly payments -- provided you score an interest rate that is lower. Even if you do not make additional payments or round up your payments, you will naturally be able to pay off your car loan faster. 2. Set up biweekly payments. Although it may not seem like much but paying twice per month instead of just one time will help you get to the finish line faster. This will also save on . It's because interest will be less likely to accumulate before making an installment -- and because you'll always lower the total loan balance. It will help you get closer to an earlier payoff date, without drastically increasing the amount that you contribute to your loan every month. 3. Round your payments to the nearest 100. Similar to this in rounding up your monthly payments, it will result in a minor change month-to-month but a substantial change in the overall. If you round up your payments to the nearest 100, or, at a minimum, the closest total number, you can slowly lower the principal amount of your vehicle loan. You will also get ahead of schedule and stay ahead of interest rates and ease you into a faster payment. 4. Opt out of unnecessary add-ons If you like gap insurance as well as an extended warranty or a service agreement to your loan, contact your provider and request that they cancel these. You should receive a prorated refund for the remainder while also lowering the amount you pay each month. But rather than putting that refund into your pocket instead, put it into the loan. So, you'll owe less overall and benefit from the benefit of a lump-sum payment. 5. Make a large additional payment Tax returns, bonuses and other large lumps of cash could go towards your auto loan. Anytime you can lower the amount of your principal by a couple of hundred dollars, it's likely worthwhile. Like rounding your payments and paying biweekly, it will prevent interest from adding up. When your loan balance decreases and your monthly payment increases, more will go toward the principal amount, which will result in an early payoff. 6. Each month you should pay your loan even you're ahead of your schedule and you are ahead of schedule, you must still pay your loan each month. This will stop interest from accruing which means that more goes toward principal, further reducing the cost of interest. Making regular payments even that aren't needed could result in the need to pay off your car loan early. When not to pay off your car loan in time. The ability to pay off your car loan earlier means you'll have an extra few hundred dollars in your pocket every month. However, in certain situations, you could negatively impact your financial situation more than it helps thus it might not be the ideal move. Beware of paying your loan early If there is a penalty for prepayment. This is essentially a punishment for not paying your loan in full or for paying off your loan in advance. The lender is trying to make up for the interest you would have incurred when you had adhered to the schedule. If there's a prior payment penalty, make sure it won't cost you more than you would otherwise be paying in interest. The loan is based on precalculated interest . front-loads the interest you pay each year so you pay for the month that accounts for a higher percentage than the month following. When you pay off your loan in advance, you will not drastically reduce costs of your auto loan. In this case it's better to adhere to the loan schedule. You don't have much debt. While it may sound counterintuitive, your credit score is calculated based on the types of debt you have and the length of the debts. Since auto loans are long-term loans paying on a regular basis for many years will maintain your credit score. One caveat: making payments to pay off your loan may reduce your credit utilization ratio, which accounts for around thirty percent of credit scoring. If you have debts that aren't paid off and high percentage of your income to debt (DTI), then removing one debt will help boost your score. Ways to lower your monthly car payments Aside refinancing your loan and renegotiating your loan, there are two ways to lower your monthly payments by deferring them or requesting an loan modification. Deferment allows you to skip the payment if you're facing financial difficulties in the short term. The lender may provide one to three months of deferment in order to help you get through the. But deferment only moves the payments until the end of your loan and you'll be required to cover them at some point. Also, you'll be accountable for interest costs, which means that at the end of the day it's more costly. Lenders may be less willing to alter your loan however it wouldn't hurt to ask. Like refinancing, you can change the conditions of your loan by either extending your duration or lowering your rate. If you can get an extension to your loan and lower your monthly payments without the need to find another lender. Next steps It may not always be the best decision to pay off your vehicle loan early. If you're facing penalties for prepayment or a risk of a hit to your credit score, the savings aren't enough to justify the expense. If you're looking to eliminate financial burden, reducing your car payment is among the fastest ways to make room in your budget. Refinancing or paying extra monthly payments are the best way to pay off your vehicle loan faster. Even if it's only one extra dollar a month, you'll reduce your debt and may cut a few months out from your loan. Learn more


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Written by Business and personal finance Contributor

Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finance. She also works full-time as a worker at her local library where she helps her community gain access to information on financial literacy, in addition to other topics.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to control their finances through providing precise, well-researched and informative data that breaks complicated subjects into digestible pieces.






Auto loans editor




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