Today’s economy is tough, and it pays to look for ways to reduce your debt burden. Let’s look at how auto refinance and other methods can help you pay off your car loan faster.
When you refinance your auto loan, you trade your current loan for one with lower interest. This can either decrease your monthly payment or shorten your total payment term. Refinancing your auto loan is one of the easiest ways to shrink your car related debt. This alone can save you thousands of dollars in interest payments.
Consider All Costs
Make sure you ask about early termination or transfer fees if you decide to refinance. If the new interest rate on your refinanced loan is minimal, or if you don’t owe that much on the loan, then transfer fees might wipe out any savings. However, even just a 1% lower interest rate can make a big difference in how much you pay overall, especially if you still have several years left on your car loan.
Make Extra Payments And Pay Down Principal
This might sound painful, but making one extra car payment a year can speed up your debt payment completion significantly. You don’t even have to pay it all at once. For example, if your car payment is $300 a month, you can divide this by 12 and just pay an extra $25 each month. This will shorten your overall loan term and reduce how much you end up paying in interest. Another method is to round up your payment. So if your bill is $289 a month, bump it up to $300 instead.
To make this tactic even more effective, ask your lender if you can dedicate the extra payments towards the principal on your loan. By reducing the overall loan amount you cut down on interest accumulation.
Smart Extra Income Use
You might be tempted to use that end of the year bonus on a nice new HDTV. The smarter move, however, would be to use it towards paying down your car loan. Too much of a sacrifice? Then dedicate 50% of any extra income to paying off your car loan, and keep the other 50% for your living expenditures.
Some lenders will actually cut down your interest rate if you go paperless. When all your loan communication and payments are done online, it saves the lender money and time. Some car loan companies are willing to share these savings with customers.
Effect On Credit Score
One question people often ask is if paying off an auto loan faster improves your credit score. Actually, having an active debt that you pay with on-time payments might be better for your credit score. Making payments as scheduled always helps keep your credit rating healthy, but early payment won’t hurt either.
You can pay off your auto loan faster using the tips described above. Refinancing your auto loan is one of the easiest and fastest ways to do this.
Published in CARCHEX Auto Finance Resources by CARCHEX on November 12, 2014