6 Ways to Pay Off Your Car Loan Early

20th July 2023

Picture this: an open road ahead of you, the wind in your hair and your favourite song playing on the radio. Sounds like all the ingredients for the perfect road trip, doesn’t it?

Owning your car comes with a whole list of advantages and you can go anywhere at any time.

The only cloud in this otherwise sunny picture is the car loan you had to take out to be in this position.

While car loans are a powerful tool and allow you to get on the road quickly and easily, nobody enjoys the period when you’re paying off the loan. Sometimes, it can feel like a never-ending journey.

But guess what?

It doesn't have to be!

In this article, we'll explore six ways in which you can pay off your car loan early. Let’s get started then, shall we?

How to Pay off Your Car Loan Early

Loan image

Make Bi-Weekly Payments
Here's a neat trick to pay off your car loan faster: switch to bi-weekly payments.

Rather than sticking to just one payment every month, split your monthly payment in half and pay that amount every fortnight.

There are 52 weeks in a year. This means you'll end up making 26 half payments, which equals 13 full payments. By the end of the year, you’d have made an extra payment without even realising it. It's like a secret hack to pay off your loan faster without breaking the bank.

Only Pay in Round Figures
Okay, let's be honest. We all hate maths, right?

But what if we told you that a little bit of rounding up could make a big difference in paying off your car loan early?

Here's how it works: let's say your monthly payment is £345. Instead of paying just that, round it up to £400 or even £500 if you can afford it.

By doing this, you'll be paying more than the minimum each month, and the extra amount will go towards reducing your loan balance. It may seem small, but those extra pounds can add up over time.

Make Extra Payments
If you have some extra cash lying around, put it towards your car loan. It could be a tax refund, a bonus from work, or even the money you saved by skipping that expensive cup of coffee every day.

Even making a couple of extra payments per year can significantly reduce your loan term and save you a substantial amount of interest in the long run. So, next time you find yourself with a little extra money, use it to say goodbye to your car loan sooner.

Refinance Your Loan
If you qualify for a lower rate of interest than when you took the loan, you may be able to refinance at a lower rate.

What does this mean, exactly?

Say you’ve taken a car loan at 10% interest. After a year, you see that you can get a lower interest rate, maybe around 8%. You could take the new loan at 8% and use it to repay your initial loan. You will need to look at this carefully and consider the term and the total amount payable as well as the APR.

Sign up for Automatic Payments
This might sound like a no-brainer, but it can actually make quite a difference if you play your cards right. Sometimes, to encourage borrowers to repay their loan amount on time, lending institutions will introduce discounts and benefits if you sign up for automatic payments.

Now, on paper, this may look insignificant. But over time, it can add up and knock a chunk off your loan liability. And if your loan burden is smaller, it is all the easier to pay it off in advance.

This comes with dual benefits if you think about it. Not only do you get extra discounts by opting for automatic payments, but you also do away with the manual task of making the payment every month!

Think carefully before purchasing add-ons
Car loans can come with a range of additional benefits, like zero depreciation cover. these obviously come with additional charges so think carefully about the ones you need especially if you are adding the cost of them to your loan

To Sum Up

Paying off your car loan early is an achievable goal, and it doesn't have to involve complex financial strategies. By implementing simple methods like making bi-weekly payments, rounding up your payments, and making extra payments whenever possible, you can chip away at your loan balance and become debt-free faster.

Remember, it's your car, your loan, and your financial journey. Take control of it and make choices that align with your goals. Explore options like refinancing or even selling your car if they suit your situation. Keep an eye on interest rates, and always be on the lookout for opportunities to accelerate your loan payoff.

So, are you ready to take charge of your car loan and bid farewell to those monthly payments? Start implementing these strategies today.

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