Approximately seven out of ten people will borrow money to purchase their cars. A car loan is one of the biggest financial commitments one can have. If you are among the seven people mentioned here, you probably have a loan that you will complete paying in 60 or 72 months which translates to 7 years. Have you thought about the amount of interest that will be? Chances are you want to find out how to payoff a car loan faster. Join us as we discuss some of the methods you can use.
How can an Auto Loan Payoff Calculator help?
Do you have an auto loan that you want to complete paying as soon as possible? Do you want to know how much you can pay per month to accelerate completion? Are you wondering how much interest you will save by shortening the payment duration? If you are, then you could use an auto loan payoff calculator. All you’ll need to do is enter the total amount you want to add to your monthly installment. The calculator will then indicate the number of months you’ll cut off and the total interest you’ll save.
Can the Auto Loan Calculator Ascertain an Early Payoff?
The auto loan calculator utilizes your original loan amount, the interest rate, and the length of the loan to calculate your monthly payments. You’ll then need to enter the remaining months on the loan, before entering the extra amount you’d want to pay per month to figure out how soon it’ll take you to pay it off. You can use the slide bar to adjust the total figure. This will help you establish the difference that the extra payment would make in terms of paying off the loan and the amount of interest you’d save.
How long will it take to payoff my loan with extra payments?
If you want to accelerate your loan repayment, you can do so by increasing your monthly installment payments. Of course, this will reduce the repayment time and interest rates. The amount of time extra payments will reduce your original loan duration depends on various factors. These include the loan amount and the percentage of increase in your installments.
If I pay extra on my car loan does it go to the principal?
Paying extra on your car loan can help you save money, more so if your lender credits the payment to the loan’s principal. To ensure this happens, you need to attach the payment with a note, informing the lender to attribute the payment to the principal as opposed to the subsequent month’s payment.
Once you pay the principal, the interest decreases every month, which means that a big percentage of your regular payment and the extra payment will be credited to the principal. This not only saves you money, but it speeds up the payoff of your loan.
Can I use a Personal Loan to Buy a Car?
You can use a personal loan to buy anything including a car. However, you need to understand that a personal loan isn’t an auto loan. Still, there are some scenarios when using a personal loan as opposed to an auto loan can be sensible. These include:
- When you don’t intend to take a full coverage insurance
- When you’re purchasing the car for a private individual or
- When you’re buying the car for a specific project
Before using a personal loan to purchase a car however, you need to understand that they come with a high-interest rate.
How to Pay Off Your Car Loan Fast
Here are tips to help you repay your auto loan faster
Pay Every Two Weeks
If your lender allows it, make half the payments every two weeks rather than the conventional monthly payment. If you can accomplish this, it means that you’ll be making around 26 half payments annually. This roughly translates to 13 full payments annually as opposed to 12.
If you have a $10,000 loan to be repaid within 6 months, you’ll end up saving approximately $35 in interest. However, if you repay your loan within 54 months as opposed to 60, you’ll cut off 6 months from the repayment plan. Remember, you’ll need to discuss this option with your lender to avoid getting penalized for clearing off the loan balance early, and making extra payments.
Round up the Payments
Rather than paying the required amount, consider rounding up your payments to the nearest $50. This will help hasten the loan repayment. As is the case with the fortnightly payments, you’ll not need lots of extra cash to eliminate some months of your loan.
For instance, assuming you borrowed $10,000 and a 10% interest rate to be repaid within 60 months, with a monthly installment payment of $212.47, you will complete your car loan with a total o $2,748.23 in interest. If you choose to round up the amount to $250 monthly, you’ll complete your car loan in 47 months, and your total interest will be $2,214.9. This will save you $533.54.
Commit to Making a Large Extra Payment Annually
This can be referred to as the once-off form of a roundup. Assuming your loan is $10,000, to be repaid within 60 months at a 10% interest rate, assuming you make an additional payment of $500 annually, you’ll end up repaying the loan within 49 months as opposed to 60 months with a total interest of $2,279.35. In this case, you’ll save $468.88 in interest.
Make One Huge Payment of Your Loan
Strive to make at least one huge payment of your loan once a year. This way, you’ll save more on interest. One thing you want to understand is: making the huge payment helps you pay off the loan sooner.
Avoid Skipping Payments
Some lenders will be lenient enough to allow you to skip payments once or even more times a year. As much as this can be tempting, you want to avoid it at all costs. Skipping installments prolongs your loan term and you’ll end up paying more on interest.
Refinance the Loan
Refinancing your loan is one of the easiest ways of reducing your payment. Here, you’ll negotiate a more reasonable payment plan for your loan. However, don’t refinance your loan unless you’re sure it’ll result in a lower monthly payment or a reduced payoff date. When it comes to refinancing your auto loan, there are some key factors you should beware of. These include:
- Understanding your interest rate
- Finding lower rates online, in banks, or at a credit union
- Financing for a lower rate and a shorter period
Your key point should be paying off your car loan faster. While reducing your interest rate will help you pay less, it won’t accelerate the loan repayment especially if you opt for a longer loan term. For instance, assuming you have three years left on your auto loan with a 5% interest rate and choose a 5-year loan to refinance plan complete with a 2.5% interest rate, all you’ll have done is to prolong the loan for an extra two years.
Unless you opt to repay the loan early, this reduces your payment but you end up paying more interest. Should you extend your loan, you should increase your monthly payment installments to accelerate the loan repayment.
Shop around for a Cheaper Car Insurance Rate
Even when you think you’re getting the lowest car insurance rate, chances are that there’ll be other lower rates. If you haven’t shopped around for a lower car insurance rate in the last two years, consider reviewing your policy. Hold discussions with your insurance agent regarding available strategies to reduce your car insurance expenses.
Analyze all discounts and gauge the possibility of changing coverage or even deductibles. Get quotes from other insurance companies and try to match coverage identically to get the competitiveness of a quote. If you’re looking to save time, try to get quotes from independent insurance agents.
Paying off your loan can be challenging. It takes lots of determination and time to finally settle your loan. If you can be consistent with the payment, the better it will be. Remember, paying off your car loan earlier can give you a better credit rating. Being debt-free gives you freedom. Once you’ve finally settled your loan, you may want to take a break from loans just to celebrate the payoff. Remember to clear off any other debts you have and if you are completely debt-free, you may want to start saving early for your next project.