If you’re looking to save money on your car loan, it’s important to consider various strategies. With the average price of a new car reaching $36,744, many people rely on car loans to make the purchase. However, car loans differ from other types of loans as they are secured by the vehicle itself. While this makes auto financing more accessible, especially for those with bad credit, it can result in higher interest rates and monthly payments.
It’s crucial to be aware that cars depreciate in value over time. This means that at some point, you may owe more to auto lenders than the car is actually worth. To mitigate this, it’s wise to pay off your car loan as quickly as possible. Here are five effective ways to get started and save money on your car loan.
Consider Refinancing Your Loan
If you’re looking to save money on your car loan, it’s important to explore the option of an auto refinance, especially if your credit score has significantly improved since you obtained the initial loan. With an auto refinance, you have the opportunity to replace your current car loan with a new loan at a lower interest rate.
However, when opting for an auto refinance, it’s crucial to maintain the same loan term. While extending the loan term may lower your interest rate and monthly payments, it won’t help you pay off the loan faster. To determine the potential savings from an auto refinance, utilize an online auto loan calculator that can provide an estimate of how much you could save.
By considering an auto refinance with a lower interest rate, you can potentially reduce your overall loan costs and save money in the long run. Remember to carefully analyze the terms and conditions of the new loan to ensure it aligns with your financial goals.
Make Two Small Monthly Payments
To accelerate the repayment process of your car loan and save money, consider adjusting your payment strategy. Instead of making one monthly payment, try making two smaller payments every two weeks. By adopting this approach, you’ll end up making an additional car payment each year.
Making bi-weekly payments can lead to reduced interest costs over the loan’s duration. Additionally, these extra payments contribute to paying off your car loan sooner, although the time saved may not be substantial.
By implementing this payment strategy, you can make significant progress in saving money on your car loan and potentially reduce the overall interest expenses. It’s important to consult with your lender to ensure that the bi-weekly payment option is available and to understand any potential administrative considerations.
Remember, every effort counts when it comes to saving money on your car loan, and adopting this payment method can help you achieve your goal of becoming debt-free sooner.
Take Advantage Of Any Extra Income
To expedite the repayment of your car loan and save money, make the most of any additional funds you receive throughout the year. If you receive a substantial tax refund, monetary gifts for your birthday, or a bonus at work, consider allocating that money towards paying off your auto loan.
While it may initially seem difficult to divert these funds towards your loan instead of indulging in discretionary expenses, paying off your loan sooner will grant you increased financial flexibility in the long run. By reducing the overall interest accrued over time, you will ultimately save a significant amount of money.
Redirecting these “fun” funds towards your car loan demonstrates a proactive approach towards financial responsibility. Once your loan is fully repaid, you will have more room in your budget to accommodate additional expenses or save for future goals.
By capitalizing on windfall amounts and applying them towards your car loan, you can accelerate the repayment process, decrease your overall interest costs, and achieve financial freedom sooner.
Pay a Little Extra Every Month
One effective method to reduce the cost of a car loan is to make additional monthly payments. By paying a little extra each month, you can expedite the repayment process. For instance, if your monthly car payment is $200, consider increasing it to $300. By consistently contributing this extra amount, you will accumulate significant savings and potentially shorten the duration of your loan.
In case your current financial circumstances do not permit such a substantial increase in monthly payments, an alternative approach is to round up your car payments. For instance, if your regular car payment is $275, consider rounding it up to $300. This adjustment may appear manageable for most individuals, yet it can yield substantial benefits over time.
Consider a Low-Cost Personal Loan
To save money on your car loan, one option worth considering is using a low-cost personal loan to pay off your car payment.
Unlike car loans, personal loans are not secured by collateral, which means you don’t have to provide any assets as security. Instead, the focus for personal loans primarily lies on factors such as your income, credit history, and credit score. By working on improving your credit, you can potentially qualify for a lower interest rate on a personal loan. This can result in significant savings over the course of your loan repayment.
The Bottom Line
By paying off your car loan, you can accelerate your progress towards financial goals while saving money. Even making modest extra payments towards your auto loan can contribute to a faster loan payoff and reduce the amount spent on interest.