Since lenders have increased the number of auto loans offered, the terms and conditions of loans can stretch for approximately eighty-four months. This means that borrowers are stuck with an auto payment for almost seven years. Since longer loans can increase the amount of interest you pay, paying a loan off in a short period can save you money.
Find out your current balance and payoff penalties
The first step to paying off your auto loan faster is to check the details of your loan. Quite often, loan lenders make it hard to pay off auto loans before time, because it means that they will lose out in interest. The best-case scenario is that your car loan was calculated using simple interest. This means your monthly payment is based on the outstanding balance of your loan. So the earlier you pay off your car loan, the fewer interest payments you’ll make. Ensure you check your balance to make sure that extra payments go toward the principal of the car loan. Some financial institutions might apply extra payments towards the interest or other fees instead of the principal.
Consider refinancing your car loan
If your auto loan came with a high-interest rate, refinancing your car loan could provide you a lower payment. Ensure that your credit score is reasonably high. This will only happen if you’ve been making monthly payments in full & on time.
Pay down the principal
Having a simple-interest loan means that you will be able to pay off your loan faster with additional payments toward the principal. Since you pay off the principal faster, you’ll pay less interest & reduce the overall cost of the loan.Paying off an auto loan takes time & discipline. However, if you consistently cut and control your expenses, you’ll soon find yourself free of car debt.