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4 minutes read. Published August 17, 2022
Authored by Kellye Guinan. Written by Personal and Business Finance Contributor

Kellye Guinan is a freelance editor and writer who has more than five years ' experience within personal financial matters. She is also a full-time librarian at the local library where she helps her community access information about financial literacy, in addition to other topics.







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to take control of their finances with concise, well-researched, and clear facts that break down otherwise complicated topics into bite-sized pieces.









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If that your lender doesn't apply a prepayment penalty and you can pay it off faster, this is a great option to save money. It means less interest paid -- and when you're finished, you'll have an extra few hundred dollars in your budget every month. However, getting there is difficult. There are a few tactics you can use to pay your loan off quicker. But, even when you are able to, it could cause you to be in a more dire financial position if you aren't mindful about your approach. 6 strategies to pay off your car loan quicker There's no specific way to pay the car loan ahead of time. In fact, it is sensible to change the method you choose to follow. Once you have an idea of what you want to do, you can benefit from a variety of ways to get rid of your car loan more quickly. 1. Refinancing with a new lender can be an easy way to pay off your loan quicker. If you choose the shorter loan term, you may be able to maintain the same monthly payment -- provided you score an interest rate that is lower. Even if you do not make extra payments or increase your monthly payments to make them more frequent, you'll be able to be able to pay off the car loan quicker. 2. Pay biweekly, even though it might seem like a lot however, making payments twice a month rather than just once will get you closer to the finish line quicker. It also helps reduce the cost of . This is because interest will be less likely to accrue before you make an installment -- and because you'll always lower your total loan balance. This helps you move towards an early payoff date without drastically increasing the amount that you pay towards your loan every month. 3. Make your payments round to the nearest 100. Similar to this the process of rounding your payments can have a slight impact on the month-to-month basis, but it will make a huge difference in the overall. By rounding to the nearest 100, or at least the nearest to the entire number, you'll slowly lower the principal amount of your vehicle loan. Also, you will be ahead of schedule, which will keep you ahead of the interest rate and allow you to make a smooth transition into a faster repayment. 4. Get rid of unnecessary extras If you want to opt out of gap insurance or an extended warranty, or a service contract to your loan make contact with your provider and cancel these. You should receive a prorated refund for the remainder while also lowering your monthly payment. However, instead of putting that cash back into your bank account, apply it to the loan. This way, you'll owe less overall and will benefit from a lump sum payment. 5. Make a large additional payment Tax returns, bonuses , and other huge lumps of cash could go towards your car loan. Any time you can reduce your principal by a few thousand dollars is worthwhile. As with rounding your payments, and making biweekly payments this will stop interest from adding up. As your loan balance decreases, more of your payment goes towards the principal amount, which will result in the early payment. 6. Each month you should pay your loan even when you're ahead of your schedule however, you should still make payments on your loan every month. This prevents interest from accruing and, in turn, more money goes towards principal, further reducing the amount of interest you have to pay. And maintaining regular payments when they aren't required will lead to paying the car loan early. When not to pay off your car loan early Making the decision to pay off your vehicle loan early can mean a few hundred dollars that you can put in your pocket each month. In some instances it could harm your finances more than help -- so it may not be the most beneficial move. Beware of paying your loan early when there is a prepayment penalty. This is essentially a punishment for making extra payments or fully paying off your loan early. It's the lender's effort to compensate for the interest you would have paid when you had adhered to the schedule. If there's a prepayment penalty, make sure it doesn't cost more than you'd pay in interest. Your loan uses precomputed interest . The interest you pay is front loaded every year, so it is that your first monthly payment counts for a greater share than the last month. When you make payments on your loan early, you won't substantially reduce the cost of your vehicle loan. In this situation it's best to adhere to the loan timetable. You don't have much debt. Although it might seem odd but your credit score is calculated on the kind of debt you have and the length of your accounts. Because car loans are long-term debt, making consistent payments for many years will keep your credit score high. One caveat: the process of paying off your loan can reduce your credit utilization ratio which accounts for approximately 30 percent of your credit score. If you have debts that aren't paid off and an excessive percentage of your income to debt (DTI) eliminating one account should help improve your score. Ways to lower your monthly car payments Aside from refinancing your loan, there are two ways to lower the cost of your monthly installments: defer them or request a loan modification. Deferment permits you to avoid the payment if you're facing financial difficulties in the short term. Lenders may offer one to three months deferment in order to help you get through the. However, deferment is only a way to move payments until the finalization of your loan which means that you'll need to cover them eventually. You will also be responsible for interest costs, which means that at the end it will cost more. Lenders may be less willing to change the terms of your loan however, it's not going to harm to inquire. Similar to refinancing, it can change the terms of your loan by either extending your time period or decreasing your interest rate. If you can get an amendment to your loan or loan term, you can reduce your monthly payments without the need to find another lender. What next? It might not necessarily be the best option to make the payment on your car loan in advance. If you're subject to prepayment penalties or a possible impact on your credit score The savings won't be worth the cost. But if you want to eliminate debt, eliminating car payments is one of the quickest methods to free up your budget. Refinancing -- or simply making additional payments is the most effective way to pay off your vehicle loan faster. Even if you only pay an extra few dollars per month, you'll be able to lower your debt, and possibly cut a few months out of your loan. Learn more


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Written by Business and personal finance contributor

Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal finance. She also works full-time as a employee at the library in her town in which she helps the community access information about financial literacy, among other topics.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances with precise, well-researched and informative data that breaks complicated subjects into digestible pieces.






Auto loans editor




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