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Getting approved for a car loan makes it possible for you to purchase a vehicle and pay for it over time.
But like any other loan you get in your life, car loans come with downsides.
First you have to pay interest on the amount you borrowed, making the car more expensive.
Then you have the monthly bill you have to pay.
You might be wondering how to get rid of a car loan faster so you can have more cash flow each month and not pay interest.
In this post, I share with you 15 tips to pay off your auto loan early.
By using these tips, you will be able to be free from your car loan a lot sooner than you thought possible.
Table of Contents
15 Tips For How To Get Rid Of A Car Loan Faster
#1. Never Fall Behind On Payments
This might sound like an odd tip, but it is crucial if you want to get rid of your car loan.
The key to staying on track and getting rid of your loan is to make sure that you’re making all of the expected auto loan payments first and foremost.
If you believe that you’re going to fall behind, reach out to your lender to explain the situation and see what you can do.
In some cases, they might be able to work with you by restructuring your auto loan or even let you stop payments for a few months.
This isn’t very common, but you never know your options if you don’t first ask.
By making sure you can keep making payments, you set yourself up as you improve your financial situation so that you can eventually start paying extra each month.
#2. Understand Your Loan Terms
Paying your car loan off early always pays off, right?
Well, not always.
In some cases, there may be a prepayment penalty attached to your loan.
Should you pay off your loan early, you may end up paying more, eliminating any savings you would have made if the prepayment penalty didn’t exist.
If you are still shopping for car loans, this is an important thing to look for and verify with the loan agent.
Make sure they show you where on the loan document it says there are no prepayment penalties.
Additionally, you’ll want to calculate how much you will actually save by paying your loan off early, and when the opportune time to do so will be.
In most cases, you want to pay off your loan as soon as possible as this leads to the greatest savings in interest.
But even paying off your loan just a few months early not only saves you some money in interest charges, but it also will free you from a monthly payment too.
This will allow you to put the money towards other uses.
Taking the time to understand the terms of your loan and working with your lender will give you the right footing you need to take care of your loan quickly and efficiently.
#3. Don’t Extend The Length Of Your Loan
When shopping for a loan, don’t fall for the trick of taking out a longer term loan just to have a smaller monthly payment.
When you do this, you guarantee that you will pay more in interest charges.
For example, a $35,000 loan for 5 years at 5% will cost you $4,629 in interest over the life of the loan.
That same loan for 8 years will cost you $7,537 in interest.
That is a difference of over $3,000 in total interest.
The other drawback to extending the length of the loan is the later years of the loan.
Since you are making smaller payments, you will have a higher loan balance as your car is older.
If you decide you need to sell, you might have very little or even negative equity in your car because it depreciates over time.
Now you have to come up with more money just to buy another car.
Save yourself the headaches and stick to a loan that is 4 or 5 years long.
#4. Shop Around For A Loan
If you are thinking ahead about paying off your car loan early and don’t have a loan yet, make sure you shop around for loans.
Don’t just assume that the car dealer offers you the best option.
Your local bank or credit union might have better loan options.
For example, the car dealer might offer you a loan with a 4% interest rate.
But the bank where you have accounts with can offer you a lower rate.
By shopping around, you are able to find the best loan for you.
Ideally, that is a loan with the lowest interest rate and the shortest term, as these will limit the amount of interest you pay.
And it will mean you pay off the loan faster too.
Finally, consider looking into a personal loan as well.
It doesn’t hurt to get multiple loan quotes so you know for certain the one you are picking is the best one for you.
#5. Make Bi-Weekly Payments
Making biweekly payments may not sound like you’re doing much more to chip away at your debt.
But the reality is that you’re actually contributing more and squeezing in an extra payment during the year.
Here is how this works.
Let’s say your monthly car payment is $500 a month.
Instead of paying $500 when your monthly payment is due, you pay $250 every two weeks.
To some, this seems like more work for the same payoff.
But you have to remember there are 26 weeks in a year.
So paying $500 each month means you pay a total of $6,000 for the year.
But when you pay $250 every two weeks, you end up paying $6,500 in a year.
That is one extra payment a year.
If your auto loan is for 5 years, by following this tip, you pay off your loan 5 months sooner.
Of course, you could even make additional payments here too.
So instead of paying $250 twice a month, you could pay $300 twice a month as well.
There is no rule saying you have to split your car loan payments in half and only pay that amount.
You could pay $300 on the 15th of the month and then $250 at the end of the month.
The choice is yours, but most people split the payment so they don’t have to do the math.
#6. Round Up Your Payments
When you’re looking into how to get rid of a car loan faster, one of the best ways to do so is to round up your payments.
For example, let’s imagine that you’re currently paying $305 a month towards your car loan.
Rather than just paying this amount each month, you decide to pay $350 a month.
If you do this, you will pay an extra $540 a year, which is close to 2 extra payments.
The amount that you choose to round up to will ultimately be based on what you can afford.
However, if you can pay more than you commit to, you can start working towards paying off your debt much faster.
#7. Make One Large Payment Yearly
In addition to the tips above, many recommend paying one large payment annually to do significant damage to the amount that you have to pay back.
However, there’s a trick.
You really want to follow this advice early on in the life of your loan.
The more you pay off in the beginning of the loan, the less interest you’re going to have to pay on the life of your loan over time.
This doesn’t mean that large payments later won’t help you pay off your car loan, but they won’t help you save as much money as a large early payment will.
With that said, if your goal is to just get the loan paid off, then it doesn’t matter when you make the large payment, just make sure you do it.
The next question usually is, where do you get the money to make the large payment?
This could be from a work bonus or using tax refunds.
#8. Consider a Lump-Sum Payment
If your loan allows for it, making a lump sum payment is a great way to clear your loan and fully pay off your car.
As the name suggests, a lump-sum payment happens when you pay off the remaining amount of your loan all at once.
This isn’t going to be achievable for everyone, but it often happens for those who experience a major windfall, like a bonus at work or inheritance of some sort.
Or if your finances are in good shape, you might even consider taking money from savings to pay off the debt in full.
If you can get out of the loan early and that money isn’t needed elsewhere, this can be a smart use of extra money you come into.
#9. Refinance Your Loan
Refinancing your auto loan can be a smart move if your credit score was recently boosted and you have more room to negotiate with your lender.
When you refinance, you get a lower interest rate than you are current paying.
In some cases, depending on your remaining balance and your interest rate, you will have a new lower monthly payment.
The trick here is to keep paying your old payment amount since you are used to that.
This guarantees you pay extra every month.
One mistake many make when they refinance, however, is going for a longer loan term.
Sure, this may seem like it’s going to save you money, but what you’re really doing is paying more over time and just adding to the amount that you’ve already paid.
You can’t just look at the monthly payment, you have to look at the length of the loan and the interest rate.
When you do this, you ensure you pay the least amount of money possible.
Always go for the shortest loan term and the highest payments as you possibly can.
Never lose sight of the fact that you want to pay your car loan off early.
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#10. Pay Off Other Debt
Another option to consider is paying off other debt.
This is especially helpful if you have some smaller debts you can easily pay off.
Focus on getting rid of these monthly payments and then shift the money that was going towards them and put the money towards your car loan.
An added bonus here is paying off some other debt could increase your credit score, which means refinancing your auto loan could make sense.
#11. Reduce Other Expenses
If you are looking for more money to put towards your loan, look at your monthly expenses.
Are there things you can go without or expenses you can lower?
One simple thing is to look at your car insurance.
By switching insurers, you could save a lot of money and put the savings towards your loan.
For example, the average person who uses Insurify to get free multiple quotes saves $500 a year on insurance when they switch.
It’s a simple process that can free up a lot of money quickly.
You also want to look over your other expenses too.
Maybe skip eating out for a month and put the savings towards your car loan.
Or have a few weekends where you don’t spend money and use the money for your loan instead.
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The more you can lower your monthly bills, the faster you can pay off your car debt.
#12. Make It A Game
I’m a competitive person so whenever I can make something into a game, it motivates me to win.
When I had a car loan, I turned paying it off into a game.
I tried to figure out the many ways I could pay off the loan early.
Then I set some goals for myself.
My monthly paying was $350 a month, so my goal was to figure out how to pay $500 each month.
And since I’m competitive, I always tried to beat this number as well.
By making it a game, I paid off my 5 year loan in under 3 years.
I did so by using and combining many of the ideas in this post.
I cut back in some areas and put that money towards my loan.
I rounded up my monthly payment.
I used windfalls and credit card rewards as well.
If you like to play games, then turning paying off your debt into a game is a simple trick you can do to help keep you motivated.
#13. Use Credit Card Rewards
Speaking of credit cards, using my rewards is a trick I used to get rid of my car loan.
I shop using cash back credit cards, so every time I pay with my cards, I earn cash back.
I allow this money to accumulate in my account and then at the end of the year, I redeem the cash back.
Usually I would get the money deposited into my checking account, which I then used to make an extra payment on my loan.
In some cases, the only option was a statement credit.
When this happened, I applied the cash back as a statement credit and then took money from my checking account to pay extra on my loan since I had a smaller credit card payment thanks to the credit.
On average, I was paying $400 a year extra with this trick.
And even though I no longer have a loan, I still use this trick.
The difference now is I put the money into building wealth.
#14. Get A Side Hustle
If you’ve exhausted all the options to put extra towards your loan, and still want to pay more, look into side hustles.
There are many ways you can earn some extra cash on the side these days.
And thanks to the gig economy, you don’t have to spend all your nights and weekends working.
You can choose how much and how often you want to work.
If you do this option, make sure you do two things.
First, put aside 20% of everything you earn into a separate savings account.
This is because you will have to pay income taxes on the money when you file your taxes.
The last thing you want is a surprise tax bill and not have the money to pay for it.
The good news is you probably won’t need all the money you save to pay your taxes, but it is good to do this just in case.
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Second, make sure you use the money to pay off your auto loan.
It can be tempting to see the money coming in and want to buy things with it.
You have to remember the goal is to pay off your car loan faster, not but more stuff.
#15. Sell Your Car
Finally, you can simply sell your car.
This assumes you have paid down your loan to a point where the value of the car is more than the remaining loan amount.
If this is the case, you can sell your car and pay off your car loan early.
Ideally, you will have money left over after doing this to buy a cheaper used car that you don’t need to take a car loan out for.
Then you can start the process of never having a car payment again.
While this trick won’t work for everyone, it is a creative way to get out from under a loan and jumpstart you on the path to a better financial life.
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There are 15 great ways for how to get rid of a car loan faster.
By following these tips, you can pay off your auto loan a lot sooner than you think, saving you thousands of dollars in interest charges.
And with the increased cash flow you have from no longer having the monthly payment, you can put that money towards paying off credit card debt or savings.
In fact, you can use the money to save for your next car, ensuring you never have to deal with another car payment again.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.