Money-Saving Hacks to Pay Off Your Car Loan Faster

car loan

Buying a car is probably one of the most expensive financial decisions you’ll make. More so when you choose to buy your vehicle through a loan. Unlike paying in cash, a car loan comes with added interest on top of the vehicle’s original price, so you end up paying more at the end of the loan’s payment term.

While this sounds counterproductive, not everyone can afford to pay for a car up front, and car loans offer a fair compromise. Fortunately, even if you take on debt to buy your car, there are still ways to save money and make the most out of the deal.

The following are some clever hacks you can follow to help you save on your car-loan costs and pay off your debt sooner than later.

Round Up Your Payments

For example, your car loan instalment costs $483 per month. Instead of paying the exact amount, you can opt to round it up to $490 or $500 depending on how much extra you’re willing to pay.

A few dollars of excess payment per month chips off your loan balance and interest payments without you even noticing it. If you make it a habit, you may end up paying hundreds of dollars more per year and pay off your loan months earlier than scheduled.

Earn Extra Income on the Side

These can range from the simple (such as letting go of your old furniture and clothing in a yard sale) to the serious (like turning your craft hobby into a part-time business). Earning extra cash on the side to supplement your monthly car loan payments is a smart way to get rid of debt as soon as possible.

If you don’t have the energy, time, or capital to explore this option, simple budgeting tactics can go a long way in helping you save. For instance, you can slash off a bit of your shopping budget or decide to eat out less and add that money instead to your monthly car payments.

Keep Your Car in Shape and Save on Insurance

It seems ridiculous to point out the obvious, but at times, some owners get too caught up in their debts that they forget to actually take care of what they’re paying for. Especially if you’ve been using the car for some time, it’s easy to take it for granted. Here’s why you shouldn’t.

A car in great shape will have good resale value, so if you’re planning to change vehicles in the near future, it would be easier to find deals for your current unit. You can also save on insurance rates if your car is in tip-top condition.

Some of the ways you can do to lower down your car’s insurance rates include installing car security systems, changing oil regularly, and consulting a reliable mechanic whenever issues occur. If your car is a Dodge Ram, Toyota Tundra, or a Ford Ranger, installing fender flares also keeps mud, dirt, and debris out of your car’s body and from other people’s vehicles while on the road.

It’s also important to familiarize yourself with your state laws regarding vehicle requirements. In the case of fender flares, for example, different states have different requirements about the legal size of fender flares for trucks and SUVs. Not only will this knowledge help keep your car in good condition; they also help you stay away from police fines and effectively lower your car insurance payments.

Choose to Receive Paperless Statements

Going digital is the new trend in financial technology, and lenders are willing to pass on the savings to you. Some lenders offer an interest-rate reduction for those who opt to receive their statements and correspondence electronically.

Going paperless, such as using electronic signatures, is not only environmentally efficient; it’s also more practical if you don’t routinely use your records for a purpose. Just save them and print away whenever the need calls for it.

Consider Refinancing

Refinancing can be a good financial tool that can lead to great savings when done at the right time. For example, if you bought your car through a loan with an 11 percent interest rate and you found a refinance deal online with a 9 percent rate, it may be worth considering to refinance.

Of course, that would depend on a variety of factors. If your credit score has suffered some damage recently, the refinance lender may hesitate to give you the advertised rate. Don’t forget to check the loan term as well.

If you refinance into a new loan with a lower interest rate but with a longer payment term, refinancing may defeat your whole purpose of doing so in the first place. Remember: the end goal is to benefit from the refinance’s overall savings, not just lower your monthly payments.

Always Pay More When You Can

Bonuses, additional work incentives, family gifts—these are all great sources of additional funds you can funnel into making faster car loan payments. Slap it into your loan’s principal to also reduce your interest charges. Of course, you don’t have to spend all of it. Treat yourself, then save some for your priorities, which, most of the time, are often just the same thing.

Plan to Pay an Extra Payment a Year

An extra payment a year off your principal is a great early payoff tactic and can potentially save you thousands on interest. To do this, you can plan for a 13th month car loan payment or divide the cost of an extra annual payment by 12, and the result is what you’ll have to allocate per month for the cause. It takes major discipline to keep your money priorities in check, but the savings are all worth it.

The Caveat

It’s important to note that all these saving hacks work if you are carrying simple interest. A simple interest rate is a basic formula of calculating interest wherein it is determined by the loan’s principal balance. So the sooner you make your payments, the lower your interest rate will be.

Don’t forget to ask your lender how your interest payments are calculated.

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