Wanna hear something crazy!?… Over 100 million Americans have car loans, with the average person owing over $26,000 on their used vehicle purchase! 🤯 So if you’ve financed your ride and are feeling bogged down by monthly payments, you’re not alone.
Unlike student loans, auto debt will never be forgiven – and heck, student loan debt might not be forgiven either! There’s only one way to get rid of those pesky monthly payments – to knuckle down and pay it off.
The sooner you own your vehicle outright, the sooner you can free up monthly cash flow for other fun stuff in life.
Here are some ways to pay off your car loan faster, so you can drive towards a brighter future.
1. Refinance (and Pretend You Didn’t)
Refinancing to a cheaper interest rate is a smart way to help pay off your car loan faster, without changing your monthly budget.
The trick is to continue making the same monthly payments as you do now, even though your new minimum loan payments are lower.
For example, let’s say your current car payment is $700 a month. But after refinancing to a lower interest rate, your new minimum payment is $600 a month.
If you continued to pay the original $700 monthly, you’d be overpaying your loan by $100 each month. And all that extra money goes directly to your loan principal. This accelerates the loan schedule and you’ll pay off the car loan much faster.
For this strategy to work you’ll need to shop around for refinancing options. Credit unions are a great place to turn, as they typically offer auto loans 1.5 – 2% cheaper than traditional banks!
Just be sure to account for any fees associated with refinancing! Here’s a car loan refinance calculator to help compare the numbers.
2. Make Extra Payments When You Can
It’s not rocket science. Any extra cash you throw at your debt will help you pay off that car loan faster.
Even the smallest extra payments can make a big difference in the long run. Since the interest on your car loan is calculated daily, each time you make an extra principal payment you are saving yourself a tiny bit of interest every day going forward.
Got a little extra cash here and there from birthday gifts, savings challenges, or picking up extra side gigs? Throw all that extra cash towards your car loan balance.
I know it’s tempting to splurge and treat yourself. I promise there will be plenty of time for that when your loan is paid off and you’re debt-free!
3. Round Up Those Payments!
Here’s a psychological trick to put extra money towards your loan each month. And it helps simplify your budget, too!
Just round up your monthly car payments to the nearest $100.
For example, if your monthly car payment is $360, round that up to an even $400 each month. The result is an extra $40 paid to your principal balance – or $480 per year!
Remember, seemingly small amounts can add up quickly. They shave months off your loan term to help you own your car outright, faster.
4. Pay Your Loan Bi-weekly, Not Monthly
Most people think there are 4 weeks in each month. But there are actually 4.3.
And that extra “.3” can be powerful when it comes to paying your car loan off faster. Here’s why:
Instead of making monthly payments, you can switch to a bi-weekly payment plan (make a half payment every 2 weeks, instead of a full payment every 4.3 weeks).
At the end of the 12 months, you will have made 26x half payments — the equivalent of 13 monthly payments. That’s a full extra car payment, made directly to your loan principal.
Better yet, paying bi-weekly is easy because chances are you get paid from your job bi-weekly. So it’s as simple as aligning payments to your paycheck cycle.
Psst! This strategy also works to help pay off your mortgage faster!
5. Sell Your Car and Downsize
If you’re in over your head with car payments, it might be time to rethink your overall transportation needs.
Maybe the car you bought a few years ago no longer suits your current lifestyle (or budget). It’s not too late to change! There’s nothing you can do about past decisions. But you can definitely make a change going forward.
Can you sell your car, pay off your loan, and get a cheaper vehicle? If you’re a 2 or 3-car household, can you consolidate your driving and get rid of a car completely? That could save you an incredible amount of money!
Choosing a more economical vehicle will not only lighten your financial load, they also lower your secondary car-related costs. Insurance, gas, and maintenance can all be cheaper with a more reliable used car.
BTW – Consumer Reports just updated its list of top cars under $20,000. And also their Brand Reliability Report for Used Cars is worth checking out, too!
6. Lower Expenses, Increase Income, or BOTH!
Take a good look at your budget. Is there any fat you can trim?
Subscriptions are a sneaky expense that many people overlook to the tune of hundreds of dollars a month. Cutting your cell phone bill as another surefire way to save meaningfully every single month like clockwork.
Spend an afternoon reviewing all your spending and see if there are any places you can cut back. Then redirect all those saved dollars towards your auto debt so you can pay off that car loan faster!
Keep in mind – tightening your budget doesn’t mean cutting the fun out of your life. It’s OK to spend money on fun stuff!
The real goal is cutting back on expenses that don’t truly provide you happiness in life. Mindless purchases, junk fees, or paying full price for things that are cheaper somewhere else. Being a bit more mindful with your spending goes a loooong way.
Another way to manufacture more disposable income in your budget is to make more money!
How long has it been since you’ve asked for a raise at work? Do you have time in your schedule to pick up some gig work or start a side hustle?
Whether it’s saving more money, or earning more money, any additional dollars you can conjure up can be thrown at your car loan. The sooner you pay that sucker off, the better you will feel!
7. Use Windfalls Wisely
When most people stumble across “free money”, they’re so excited and jubilant that they end up celebrating too much and blowing it all. Don’t be one of them!
Tax refunds, work bonuses, or any unexpected cash is a great opportunity to make a lump-sum payment on your car loan.
It might not be as exciting as splurging on a trip to St. Barts with your friends. But trading that short-lived fun now for financial freedom later is always a smarter move.
Try this: For your birthday or Christmas this year put the word out with your friends and family that you’d prefer to receive money vs. physical gifts. Tell everyone you have a goal of paying off your car loan faster, and you’d love it if they could help you achieve that.
8. Keep Track and Stay Motivated
Goals are much easier to hit when they are specific, measurable, and tracked!
Do yourself a favor and write down specifically how you plan to pay off your car loan faster. Then set monthly check-ins to track that progress.
For example, if you plan to make an extra $200 payment each month to your loan principal. You could print out a debt-payoff chart and stick it on your fridge, then color in your progress each month as you make those payments.
Breaking down big goals into smaller micro-actions will make the whole process less overwhelming and feel more manageable.
Oh, and don’t forget to celebrate your milestones – every little victory counts!
Should You Pay off Your Car Loan Early?
Not all debt is bad debt. If you’ve got a car loan with fixed rates under ~4%, it might be a smarter financial move to *not* pay off your car loan faster.
Instead of using extra savings to pay down your loan, you might be able to better deploy that money into retirement accounts for long-term investing.
That being said, there’s no better feeling than being debt-free and owning your possessions outright. Debt can feel like an anchor. No matter how cheap your loan is, if you feel bogged down by debt it’s probably worth paying it off ASAP.
Ultimately, it’s a personal decision. Here’s a longer explanation and all the considerations of prioritizing debt vs. investing with spare cash.
The Bottom Line:
Paying off your car loan faster is not just a dream – it’s an achievable goal for anyone who commits to making the right money moves. Refinancing to better rates, rounding up your monthly payments, or switching to bi-weekly payments are all great ways to pay off your car loan faster.
Don’t forget to stay motivated by tracking your progress and celebrating the little milestones along the way. And if you find yourself in a tight spot, perhaps it’s time to downsize your vehicle and lower your monthly car expenses. Short-term sacrifices will have a big payoff down the road.
Related posts:
