It’s a dream of many to own their own car. And, with so many monthly payments to make, it can also be a nightmare.
Experts like Lantern by SoFi say, “Longer terms translate to more months of interest payment, increasing the amount you pay in the long run. What’s more, longer terms are also likely to come with higher interest rates.”
The best way to ensure that your loan gets paid off faster is by working with your lender and getting them to reduce the interest rate on your loan. Then there are some other tips you can use too:
Ask for a lower interest rate
There’s no point in buying an expensive car and paying off the loan over many years if you can get it paid off faster with a lower interest rate. So, finding out the average interest rate car loan seems unavoidable here. If you have a good credit score, your lender might be willing to give you one without any hassle.
However, if your score is bad or average, don’t be discouraged! You can still ask for a better APR based on other factors like employment history or income level; lenders will consider these when determining whether or not they’ll grant your request.
Pay more than the minimum amount due each month
The minimum payment is what you have to pay each month to keep your account in good standing and avoid late fees. However, if you can afford to pay more than the minimum amount due, do so. This will save you money on interest since less of your payment goes toward paying down the principal balance.
Contributions toward principle help you save money by reducing the total number of payments needed to pay off your loan, which saves interest in the long run. Take advantage of any grace period offered by your lender before making larger payments.
Consider paying biweekly instead of monthly
Biweekly payments are a great way to pay down your loan faster, because they allow you to double the number of payments each year. Instead of making just one payment per month, you’ll be making two payments every other week. That means your monthly payment amount is not doubled, but rather split in half: half goes toward the principal, and half goes toward interest.
After 12 months of biweekly payments under this system, your loan will be paid off entirely—and some people save even more money by opting for even shorter periods like 6 months or 3 months.
Refinance your car loan
Refinancing your car loan is one of the best ways to save money on interest and pay off your car loan early. The key to refinancing is finding a lower rate, which will help you save hundreds or even thousands of dollars over time.
You can get this by lowering the term of your loan and/or getting a lower interest rate. When it comes time to refinance, you’ll need good credit history and some cash saved up so that you have enough for down payment.
The best way to pay off your car loan is by finding the right balance between paying more than the minimum amount due each month and asking for a lower interest rate. The truth is that there are many reasons why you would want to pay off your car loan sooner rather than later, but the most important reason might be the peace of mind. You don’t want any lingering debt hanging over your head once you own your vehicle outright!