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Here’s How to Pay Off Your Car Loan Faster

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Key takeaways
  • You can pay off your car loan early by refinancing, strategically making additional payments or opting out of add-ons.
  • It’s possible to pay off your car loan faster using these strategies, but you may need to make payments now to save on interest later.
  • Skip the early payments if you have other high-interest debts or if your loan comes with prepayment penalties.

Strategies to pay off your car loan faster

1. Refinance your car loan

Refinancing your car loan involves taking out a new car loan with terms that work better for you. Choosing a shorter repayment term allows you to pay off your car loan faster just by making your payments on time. 

Refinancing at a lower rate could help you pay off your car early without increasing your monthly payment. You can get lower rates if your credit score has improved since you first applied for the loan or if market interest rates have gone down. 

Refinancing comes with upfront fees, so use an auto loan calculator to make sure you’re saving enough on interest charges to make up for the added costs.

2. Make biweekly payments

You can pay off your car loan faster by making biweekly payments or paying half the amount of your car payment every two weeks instead of making the full payment on a monthly basis.

Splitting up payments helps you save on interest and put more money toward your loan balance. Plus, you’ll make an additional car payment every year, which helps you pay off your loan faster.

Here’s what a biweekly payment schedule would look like on a $10,000 auto loan with a 7% interest rate. (You’d save $478 on interest and pay off the loan 13 months sooner!)

Monthly paymentsBiweekly payments 
Payment amount$116$58
Number of payments in a year1226
Total interest paid$3,938$3,460
Interest savings over the life of the loanN/A$478
Number of months to pay off the loan121108

3. Round up your payments

Rounding up your car payments to the next $50 or $100 can help you pay off your car early by chipping away at your balance faster. Decide how much to round up based on the amount of disposable income you have left in your household budget at the end of the month.

Before choosing this strategy, confirm with your lender that the extra money will go toward paying off your principal loan balance rather than interest charges.

Here’s what rounding up could look like if you have a $25,000 auto loan at a 7% interest rate and a five-year loan term. (Adding an extra $100 to your car payment would save $938 on interest and you’d pay off your loan 12 months sooner.)

Monthly paymentMonthly payment + $50Monthly payment + $100
Total payment amount$495$545$595
Total interest paid$4,701$4,179$3,762
Interest savings over the life of the loanN/A$522$938
Number of months to pay off the loan605348

4. Put extra money toward a one-time payment

Using windfalls like a tax refund or work bonus toward an extra auto payment can help you pay off your car loan faster. Just confirm with your lender that your additional payment will be applied to your principal loan balance to reduce the total amount that you owe.

Here’s how an additional payment of $2,000 can help speed up your loan payoff if you have a $20,000 car loan at a 7% interest rate with a five-year loan term. (You’d pay off your car 7 months sooner and save $770 on interest.)

Monthly paymentMonthly payment + $2,000 windfall
Total monthly payment$395$395
One-time additional paymentN/A$2,000
Total interest paid$3,761$2,991
Interest savings over the life of the loanN/A$770
Number of months to pay off the loan6053

Keep up with your regular car payments

Keep making your monthly car payments as scheduled. Any extra payments are just that — extra. You’re still responsible for keeping up with your scheduled payments.

5. Cancel unnecessary add-ons

Some of your monthly car payments might be going to optional add-ons and dealer fees. Review your loan agreement to see if you’re paying for any of the following:

If you see any of these on your loan documents, you can contact your dealer to cancel any services you don’t use or need. You’ll likely be refunded a prorated amount for any unused services. Consider using that refund to pay down your auto loan.

Signs it makes sense to pay off your car loan early

Now you know how to pay off a car loan faster, but should you? Here are a few signs that you’re in good shape for an early payoff:

  • You have extra cash: Paying off debt is a great way to put extra income to use. Just make sure that your lender applies the money to your principal balance, not your future interest charges.
  • You want to be debt-free: Becoming debt-free can help reduce stress and put more money in your pocket long term. Plus, it can help you get credit in the future by improving your credit utilization ratio and debt-to-income ratio.
  • Your interest rate is too high: Higher interest rates can make it a struggle to pay down your auto loan. As noted above, if your credit score has improved since you first took out your car loan or if market rates have dropped, consider refinancing your loan.

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Signs not to pay off your car loan early

On the other hand, it doesn’t always make financial sense to pay off auto loans early. Here are some situations where you may be better off sticking to your original payment schedule:

  • You have a prepayment penalty: As the name suggests, prepayment penalties are fees that your lender charges you for paying off the loan early. Not every auto loan has them, but it’s worth checking with your lender.
  • You have other high-interest debt: Auto loan rates are typically lower than credit card and personal loan rates. If you’re carrying around a lot of high-interest debt, consider using the debt avalanche method to pay off the debts with the highest interest rates first.
  • You don’t have much debt: Making on-time car payments may actually boost your credit score, while closing an account can temporarily cause your score to drop. If you don’t have a lot of debt, it could be helpful to keep your current payment schedule so you can keep sending positive payment information to the credit bureaus.
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