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Publish Date - January 13, 2022

Author: Daniel Martin

Categories:   Auto Loans & Financing    Vehicle & Buying Research   

8 Smart Hacks to Pay Down Your Auto Loan Faster

Buying a car is one of the most expensive purchases anyone can make. You may not be able to do anything about the cost of the car, but you can save money on a car loan. This can get done by lowering the interest charges you’ll need to pay.

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Buying a car is one of the most expensive purchases anyone can make. You may not be able to do anything about the cost of the car, but you can save money on a car loan. This can get done by lowering the interest charges you’ll need to pay.

Auto loans are some of the common types of loans. Although they slightly differ from other types of loans, they are much easier to get. That’s because they’re secured by the car itself.

A lot of dealers provide convenient and easy-to-access auto finance alternatives. But a vehicle is a depreciating asset. That means that they lose value over time. In the end, you find yourself in a situation where you owe your lender more than is necessary. So, it makes sense to try and pay off your auto loan as fast as you can.

So, are you thinking of paying off your auto loan early but not sure where to start? Well, it doesn’t have to be as complicated as you might think, thanks to Chunk Finance. Chunk tools provide a personalized view to minimizing interest payments on your debt. That way, you can still manage to spend when paying the debt.

Chunk also assists individuals with different kinds of loans. They provide a bird’s eye-view of your finances, which helps you to pay your student loans faster.

Strategies to Paying Off a Car Loan Sooner

No one likes being in debt or paying interest on a loan for longer than they should. Paying off a loan feels like it takes forever, literally! The balance never seems to go down month after month.

If possible, you’re better off paying the loan sooner, which is not as difficult as it might seem. Below are the smart hacks on how to go about it.

1. Avalanche and Snowball Methods

The avalanche method involves focusing on paying off your highest-interest debt. Apart from auto loans, credit cards for college students can be appropriately tackled by the avalanche method. You can also take care of personal loans using this strategy.

Debt avalanche enables you to focus on minimizing your highest interest debt. For instance, if your highest-interest debt is a credit card balance with an APR of 20.23 percent. That credit becomes your priority with the avalanche strategy. You can prioritize it and at the same time make a minimum monthly payment on other debts.

Any additional cash you get in your budget goes towards your highest interest debt. Once your credit card or auto loan gets paid off, you can move on to the next debt with the highest interest rate. If it’s a student loan, for instance, the avalanche strategy will help pay the student loans faster.

In contrast, the snowball method focuses on the payment of the smallest of loans as fast as possible. Immediately the debt is paid off, the money used towards that payment gets rolled into the next debt owed.

Using the snowball method to pay off debt ensures that you manage spending when paying the debt.

The two debt paydown options help in paying your debts faster.

2. Rounded Up Payments to the Nearest $50

If you don’t want to throw a lot of money at a never-ending car loan, you can scrape away at it. This can get done by rounding up the amount of car payments each month. It helps to reduce the payment schedule and interest charges.

If for instance, your monthly payment was $335, it could be rounded up to $350 monthly. With the extra $15, you can save a good amount in interest and pay off the auto loan way earlier.

Note that you can round up payments to whatever amount fits your budget. The best thing about this strategy is that it isn’t binding. If money is tight for some time, you can stop rounding up payments to give yourself added flexibility.

3. Pay a Little Extra Each Month

Paying a little extra each month is the other smart way through which you can pay auto loans. For instance, if your car payment is $300 a month, try and pay $450 monthly. The extra money accumulates faster, saving you several years of paying down the loan.

Remember that this strategy is only practical if your financial situation allows it. The best thing about it, however, is that it doesn’t have to be regular. What’s important is that you get to pay off the principal at a faster rate than the normal schedule.

4. Payment Splitting

Payment splitting is the best way of minimizing interest charges. Assume that your car payment is due on the 30th of every month. If you split payment, you’d pay half your monthly payment on the 15th of every month and the other half paid on the 30th.

The first payment on the 15th minimizes the interest that accumulates in the 15 days. That’s the period between the first and last payment in a month. Payment splitting makes a difference in the interest charges a person ends up paying.

5. Bi-Weekly Payments

Individuals can take payment splitting a notch higher and shift to bi-weekly payments. Thus, rather than making payments once a month, the monthly payments can get split in half. That amount can then get paid every two weeks.

Remember some months have five weeks. So you’ll end up having thirteen full auto payments a year or 26 half auto loan payments yearly. This is better than 12 half auto payments a year.

Keep in mind the date when your monthly payment date is due. You can always adjust the due date, for instance, when necessary with this strategy.

6. Consider One-Off Payments

A balloon or one-off payment is the other option of clearing your auto loan quickly. Balloon payment enables individuals to reduce the fixed payment amount. This way, they can make one large payment at the end of the loan term. This kind of payment is good for borrowers with excellent credit.

If you have extra cash or funds left over at the end of your pay period, you can put it against your debt to pay it off sooner. You must, however, ensure that this is allowed in your loan contract before signing.

7. Check for Penalties

You can check with your lender to get the details of your loan and how everything works. Ensure you do that before making any additional payments on the car. Much as it’s not common, some lenders take advantage and impose penalties for paying your auto loan early. That action can render the interest savings invalid.

It’s also crucial that you know where additional payments get applied. This should also happen before making extra car payments. That’s because some lenders put additional payments towards the loan interest and not the principal.

8. Refinance Auto Loan

You should consider refinancing your auto loan. But, it’s only a good idea if your credit score has improved since the initial auto loan was taken. Refinancing your auto loan enables you to replace the present loan with a new loan at a new low rate.

But, you should keep the loan term the same if you choose this strategy. Extending the loan terms, the loan interest rate, and loan payment may be lower. The limitation, however, is that you won’t get to pay off the loan any sooner.

With this strategy, individuals are at liberty to use an online car loan calculator. It enables them to know how much they can save with an auto loan refinancing plan.

Final Thoughts

The auto loan smart hacks provided in this article can pay off the loan much faster and save you money. But, individuals must ensure this loan uses simple interest. They must also ensure that the additional payments are assigned to the principal.

The smart hacks in this article should help you create a winning strategy towards clearing that auto loan and becoming debt-free.