Vehicle Financing: 4 Options that Help You Pay off Your Car
Monday, February 5, 2018, 6:00 AM | Leave Comment
Debt plagues many households these days, and auto debt is one of the biggest. To get ahead, reducing debt and interest payments is essential.
Here are 4 strategies to help get you out of car loan debt fast.
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Pay Half the Monthly Payment Every Two Weeks
This tried-and-true strategy cuts 6 months off of a 60-month car note. It seems hard to believe that such a slight adjustment reduces the payoff time by 10 percent, but if you do the math, you’ll see how this little change adds up.
When you make your car payment once per month, that’s twelve payments per year. When you pay half the payment twice per week, you make 26 half payments per year, so you pay the equivalent of 13 full payments.
This strategy takes advantage of the fact every month except February has 30 or 31 days instead of 28.
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Round Up
This is another payoff strategy that requires only a small adjustment but adds up big over time.
Rounding up to the nearest $50 can save many months and hundreds of dollars in interest over the life of a loan.
For example, let’s say you have a 60-month note for $10,000 at 10 percent interest, with a payment of $212.47. By paying $250 every month, the loan life would be reduced from 60 to 47 months and $533.54 in interest is saved.
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Make an Extra Big Payment Each Year
If this works better, you can still save big money, through not quite as much as with the consistent round up strategy.
Using the loan example above, if you made a $500 extra payment each year, the loan life would reduce to 49 months, saving $468.88 in interest.
Some companies, like Young Automotive Group, know that many borrowers find they can get serious interest-rate reductions by refinancing their loans. This is particularly true if you financed your vehicle while your credit score was lower.
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Refinance Your Loan
Often, with just a year or two of on time payments, your credit rebounds enough to qualify for substantial savings.
Shopping refinance options is generally easy. You can try your bank or credit union or search online.
Likely, you will get several offers that provide savings. Refinancing only makes sense if your monthly payment lowers and you get a new payoff date. Borrowers who took out a loan when they qualified for prime loan programs often cannot find significant enough savings to justify refinancing.
To pay off your car loan faster, one thing to always avoid is skipping payments. Lenders often offer this option, but you pay more in the end and negate the effect of any of the above strategies.
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Rachelle Wilber is a freelance writer living in the San Diego, California area. She graduated from San Diego State University with her Bachelor’s Degree in Journalism and Media Studies. She tries to find an interest in all topics and themes, which prompts her writing. When she isn’t on her porch writing in the sun, you can find her shopping, at the beach, or at the gym. Follow her on twitter and Facebook.
