Auto LoansAuto Refinance
How Does LendingTree Get Paid?

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How to Pay Off Your Car Loan Faster

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

As lenders are making car loans accessible to more borrowers, the terms of the loan can stretch as long as 96 months — which can stick borrowers with a car payment for up to eight years! A lengthy loan can rack up a significant amount of interest, so paying it off early can save money and take a costly item off your monthly budget.

Here’s how to pay off your car loan faster

Determining what you owe, looking at your options for loan repayment and finding ways to pay more toward your loan can all contribute to a quicker repayment.

Determine your current balance and payoff penalties

The first step when planning on how to pay off your car loan faster is to look at the details of your loan. Some lenders make it difficult to pay off car loans early because they’ll receive less payment in interest. In the best-case scenario, your loan was calculated using simple interest, which means your interest payment is based on your loan’s outstanding balance. If you pay off the loan early, you’ll make fewer interest payments.

Prepayment penalty

If your lender does allow early payoff, ask whether there’s a prepayment penalty. Some lenders will impose a fee for early payoff, which could reduce any interest savings you’d gain by paying the loan early.

Then, check your balance and make sure that any extra payments go toward the principal of the loan. Some financial institutions will automatically apply additional payments toward interest or other fees rather than toward reducing the principal. You may have to specify that a transfer or a check is a “principal-only payment,” so run it with your lender first.

Calculate how much you’ll save

After you’ve figured out how much you owe and whether your lender imposes prepayment penalties, use an auto loan calculator to determine how much you’ll save if you pay off the car loan early. If there are prepayment penalties, they can negate any savings.

Even if your calculations show minimal savings for early loan payoff, you may find other benefits that make it worth your while. For example, eliminating your loan through early payoff could help your credit score and free up money in your monthly budget.

Consider refinancing your current car loan

If your car loan came with a high interest rate or other monthly fees, refinancing your auto loan could provide you with better terms and a lower payment if your credit score has increased since you applied for the loan (which is likely if you’ve been making monthly payments in full and on time).

As you look at options for refinancing, keep in mind that your goal is to pay off the loan quickly. Refinancing with a new 72-month loan is still a relatively long time — 72 months is six years, more than half a decade. Instead, you’ll want to look at a shorter term — say 60 or fewer months — and a lower interest rate, if possible. If you do refinance for a long-term loan, consider paying extra toward the principal every month to pay off the loan more quickly.

Pursue methods to pay down the principal

As we’ve mentioned, if you have a simple-interest loan, you can pay it off more quickly by making additional payments toward the principal. Because you’ll pay off the principal faster, you’ll pay less interest and reduce the overall cost of the loan.

Here’s how to pay off your car loan faster by making extra payments toward your principal balance.

Make biweekly payments

If you change the frequency of your payment to every two weeks, rather than once a month, you’ll make one extra payment every year.

Here’s how it works. Divide your monthly car payment in half, and make that payment every two weeks. You’ll be paying 50% of your payment 26 times a year, which works out to 13 monthly payments over 12 months.

This technique will also reduce your interest payments over the life of the loan, as you’re decreasing your remaining balance at a faster rate.

Round up your car loan payments

Another way to slightly increase your payment schedule is to round up your payment to the nearest $50. For example, if you borrowed $13,000 at a 5% interest rate for 72 months, your monthly payment is $209. On a regular payment schedule, you’ll pay $2,074 in interest over the life of the loan.

If you round that payment up to $250, you’ll pay the loan off at least 13 months earlier and save at least $395 in interest.

Find extra money

Another way to pay off your car loan faster is to put any extra money you can find or earn toward your car loan. Here are some ideas:

Snowball (or avalanche) your debt payments

These approaches can help you pay off all of your debts, including your car loan.

With the snowball method, you first pay all the money you can toward your smallest debt until it’s paid off. Then, apply the money you were paying toward that debt to your next largest debt, and continue the pattern once that debt is paid. You do the same when using the avalanche method, only with your highest-interest debts.

The longer you make your snowball or avalanche payments, the more effectively you’ll pay off debt. The key to success is to stay disciplined in making payments and resist taking on new debt during this period.

Utilize tax refunds, bonuses and pay raises

Putting tax refunds, bonuses and pay raises toward your car loan may seem painful now — but in the long run, paying off your car loan faster will free up your budget for more enjoyable expenditures in the future, like vacations or eating out.

Applying pay raises to car loan payments is an especially effective method of paying down a car loan. Pay raises typically don’t result in a large increase per paycheck, and you easily could apply that small amount of extra cash toward your loan. Over time, it’ll help bring down your car loan balance more quickly and you’ll never miss the money because you didn’t count on having it for your normal expenditures.

Earn additional income

If you can’t find extra cash to put toward your car loan, try earning some extra income in your free time with nonconventional jobs. You can rent out a room in your house, do yard work for friends and neighbors, sell items at a yard sale or online or house and pet sit. Applying all your extra earnings toward your car loan will chip away at the balance.

Reduce extra expenses

Temporarily cutting out other monthly budget items can also free up cash that you can add to your monthly car payment. Can you go without cable or decrease your cell phone data plan? Reducing your restaurant and entertainment budget or forgoing new name-brand clothes or other items for a year or two can help you pay off your car loan quickly.

How paying off a car loan early affects your credit

Paying off your car loan completely could help or hurt your credit, depending on certain factors.

When paying off a car loan helps your credit

It could help when it improves your debt-to-income ratio (DTI). Lenders often look at DTI as a way to judge your ability to take on and pay off loans. Having a completed installment loan on your credit history could work in your favor whenever you want to apply for another loan, such as a home mortgage.

When paying off a car loan hurts your credit

It could hurt your credit score, however, if you lack another type of open installment loan. Lenders tabulate open credit accounts as a greater positive toward your credit score than closed credit accounts. And without another installment loan, such as a mortgage, student loan or personal loan, you’ll limit your credit diversification. Even if your credit score dips slightly from paying off your car loan, it may be worth it if you have a high-interest loan. You can check your credit score here.


What is 72 months in years?

A term of 72 months is six years.

How to get out of a car loan?

There are several ways to get out of a car loan. You could pay it off, refinance it, sell the car to an individual or dealership or trade in the car for a less expensive vehicle.

What happens when you pay off your car?

When you pay off the car, the lender will send the title or a statement of lien release to you. In states where the lender holds the title until the loan is paid off, they will send the title to you when you pay off the car, marked as free and clear of any liens. In states where an individual holds the title rather than the lender, the lender will send a document of lien release, stating the car no longer has a lien on it.

Is it better to pay principal or interest on a car loan? 

It’s better to pay the principal. On most car loans, the principal is a set amount that won’t change, but the amount you pay in interest can go up or down, depending on how quickly you pay off the principal. Reducing the principal early reduces how much you have to pay in interest.