Car payments can take up a significant amount of your monthly budget. Luckily, they don't have to take up part of your budget forever. If you can pay off your car, you'll be able to free up your car payment money to pay for other expenses or save for another goal like a down payment on your next car. Here are a few ideas on how to pay off your car early.
Refinance to a Shorter Term Loan
Refinancing your car loan might be one of the easiest ways to pay off your car early. If you recently took out a longer term car loan, such as a 60, 72 or 84 month loan, you could easily shave years off your repayments by refinancing to a shorter term loan, such as a 36 or 48 month auto loan. Your monthly payments may increase, but the loan will be paid off faster. Once the new loan is paid off in full, you'll be able to stop sending in payments toward your loan and instead start making payments to your bank account.
Refinance to a Lower Interest Rate Loan
You still may be able to benefit from refinancing your car loan even if you already have a shorter term loan. Lowering the interest rate on your car loan while keeping the number of payments you still owe the same can provide a lower car payment. If you wish to pay your car off early, continue paying the same payment amount as your old payment even though your new refinanced car payment is lower. The extra payments, even if they are small, will help you pay your car loan off earlier, unless you have a pre-computed interest loan.
Make Extra Payments
Refinancing may not be a good option if you've already secured a short term and super low interest rate auto loan. Luckily, another way to pay off your car early is by making extra payments on your current car loan. As long as you don't have a pre-computed interest loan, making extra payments will lower the amount of interest you pay on your car loan and move up your final payment date as you pay more toward the principal balance of the loan.
Your extra payments can be relatively small, such as $20 or $50 per month, or you could double your monthly payments for a much faster pay off. Depending on the size of your loan and extra payments, you could potentially pay your car loan off months or years ahead of schedule.
Downgrade to a Less Expensive Car
Selling your current car and downgrading to a less expensive car may not be fun, but it is an excellent way to pay off your car early. While you won't have the same car, the feeling of owning a car outright may be worth it. You may be able to buy a different car in cash if you have a significant amount of equity in your current car. However, even if you don't have a lot of equity in your car, buying a less expensive car will likely mean you can get a shorter term car loan with similar payments on your downgraded car. This will allow you to pay off your car much faster than sticking with a more expensive vehicle with a longer term car loan.
Get the Best Deal If You Change Your Car Loan
Most of the methods of paying off your car early discussed above involve either refinancing your current car loan or getting a smaller loan on a less expensive car. If you choose one of these methods, make sure you either shop around for the best deal on a refinance auto loan or you shop around for the best deal on a new or used auto loan. If you get the best deal on an auto loan, you'll be able to have your car loan paid off as fast as your extra payments allow.