Long term car loans can allow consumers to get behind the wheel of a more expensive car by spreading out car payments for four, five or six or more years. Lower monthly payments can make a previously unaffordable car a budget pleaser, but consumers may find themselves stuck with a car longer than they want. You can pay off your car loan early and in many cases without penalty. By paying off your auto loan early, you will be freed of a debt burden, have more money at your disposal and be in a better position to buy a new car if that is what you want.
Read on and we’ll take a look at some options you have to ending your car loan before its appointed time.
Make a one-time payment — Most lenders will allow you to make an additional payment on your loan, money that can be directly applied to your principal. For example, if you owe $6,304.55 on your car loan and you take part of your tax return and make a payment of $1,304.55, then you will owe just $5,000 on your loan. You will have your car paid off months before you get to your final payment stub.
Add a little extra each month — If a lump sum payment is too much to handle, you can add a little extra money each month to reduce your loan. For instance, if your monthly payments are $275, consider paying $300 per month, designating the extra $25 to reduce your principal. Effectively, you will be making an extra payment once per year, enabling you to pay off this loan faster. Review your budget to see if you can handle paying $25 or more per month above your current car payment.
Make bi-weekly payments — Contact your lender to find out if they would be open to you dividing your monthly payment in half, by making two payments per month. If your loan is for $300 per month, then you would make two $150 payments approximately every 15 days. This may seem like the same amount, but because you’re paying your interest more frequently, you will whittle down your overall debt faster.
Refinance your loan — Perhaps the terms on your car loan are not all that favorable. Or, maybe your financial position has improved since you bought your car. Perhaps both. If you have good credit, you might consider refinancing your original car loan by seeking out a new lender. Take that 60-month car loan with 50 payments left and roll it into a 36-month car loan if you can handle the higher monthly payments. Immediately, you will reduce your loan term by 14 months.
Just sell it — There is no need for you to be stuck with a car you no longer want or need. If this is the case for you, then find a private buyer for your car. Many potential buyers have access to personal loans through companies like TI Financial and can easily relieve you of an unwanted payment. Use the money you receive in the transaction to pay off your car loan. This is the quickest way for you pay off your car loan early.
Be familiar with the terms of your contract before making extra payments. If you are unsure how one of the suggestions made above will affect you, then contact your lender. If you have poor credit be sure to check out auto loans for bad credit for more information about getting approved with poor to fair credit.