The Best Ways to Pay Off Your Car Loan Early

While working towards becoming debt-free, I wanted to use every trick in the book to save money, increase my income and pay down my debt faster.

After paying off all my credit cards, my auto loan was the only thing between me and complete debt freedom. Below are some of the best methods you can use to pay off your car loan, credit cards or any type of debt even earlier.

1. Make Bi-Weekly Payments

Submit half the payments to your lender every two weeks, instead of the regular monthly payment. This will accomplish three things:

  • Less interest will accumulate since your payments are applied more often
  • You will pay an extra payment, since there are 52 weeks in a year (which equals 26 yearly payments, or one extra)
  • Doing this for the duration of the loan could shave off several months

Make sure to discuss this with your lender before making bi-weekly payments, since you might be penalized for any extra payments or paying the loan balance off early.

2. Round Up the Payments

Rounding up your payments is an effortless way to pay extra without even missing the funds. Just like making bi-weekly payments, you don’t need a lot of extra funds to knock a few months off the term of your loan.

For instance, my auto payment was $264.12 but I chose to round it up to $300, which is an extra $35.88 per month. After twelve months, that’s an extra $430.56 (or almost two additional payments).

You could even go a step further and bump up your payments by an extra $50 or $100 per month. Over time, that adds up to a significant amount, which will save you money on interest and shorten the term of your loan.

3. Find Extra Money

Anytime I sold clothes on eBay, sold books on Amazon or chose to ImpulseSave instead of impulse buy, I used those extra funds to pay down my loan.

Although the small amounts like $20 here and $12 there, might not seem like a lot, they definitely add up. If you have a small part-time job on the side, that pays an extra $100 per month, put that towards the loan. Over the course of a year, that’s an extra $1,200.

4. Make One Extra Payment

If you don’t have the cash flow to commit to bi-weekly payments, you can achieve the same result by making one extra payment per year. Use money from a tax refund or bonus from work, to help pay down your loan faster.

Or you can divide your monthly payment by 12 and add this amount to all future payments.

For example, with my car payment I can divide $264.12 by 12 months and add $22.01 to each payment. Each payment would be increased to $286.13 equaling one extra payment per year.

5. Refinance Your Loan

This is one of the easiest ways to lower your payment, save interest and pay your loan off in half the time (if you have semi-good credit of course).

Many local banks and credit unions are offering super low interest rates on mortgage loans and car loans. I started off paying an interest of 5.75% but was able to refinance to 3.16%.

Recently I’ve seen auto loan interest rates as low as 2.25% which is crazy good. So if you haven’t refinanced your loan (or taken advantage of 0% interest), now is the the perfect time to do it.

6. Take Advantage of Paperless

Sometimes additional discounts are offered when you sign up for auto payments and paperless statements.

It saves the lender money by not having to follow up with paper billing and creates a seamless payment experience so there’s no late fees. I was able to get an extra 0.25% off my interest rate since I took advantage of online bill pay and paperless statements.

The Benefits of Paying ANY Loan Off Early

The bottom line is that paying your loan or credit card debt off early, will save you money in interest and decrease the overall term of the loan.

Just imagine what you could do with your extra money: save for retirement, make home improvements or pay off other debts.

There are lots of benefits to paying off your loans early, but one of the biggest is less stress and less risk since you won’t be a slave to the lender anymore!

What techniques do you apply to pay off your loans faster?

Photo Credit: UggBoy♥UggGirl

About the author: Carrie Smith is the financial artist and editor behind Careful Cents. She helps creative entrepreneurs make a living with their creations, and reach financial freedom through systems and financial organization. She’s been featured in The Huffington Post, Glamour Magazine, Kiplinger Finance and several other business websites. In May 2013 she quit her full-time accounting job to pursue entrepreneurship and blogging. You can find her on Twitter or Instagram @carefulcents.

Comments on this entry are closed.

  • Michelle June 21, 2012, 7:36 am

    I applied anything extra that I could to it. And once I got my Christmas bonus I put a lot of that towards my loan.

    • Carrie Smith June 21, 2012, 8:23 am

      Applying your Christmas bonus is a great idea, I guess any birthday money would be good too. Great thinking @d7e7293e5581db8bf79f8fae3b468585:disqus 

      • Skills January 15, 2014, 10:04 pm

        i have a loan and we agreed the payment is biweekly..can you explain the word biweekly means?because they took on my debit 3 times in a month which should be twice in a month

  • Modest Money June 21, 2012, 7:40 am

    Good tips Carrie.  I hate to be picky, but doesn’t biweekly payments result in an extra 2 payments per year?

    The other strategy that I’ve used on my car loan is to move the amount owing over to a 0% credit card balance transfer.  Then you can save on interested for 6-12+ months.  You just have to make sure you move the balance back somewhere else once the balance transfer period expires.  At that point I would transfer it to my line of credit.  The other catch is that it can be tempting to not make regular payments when you do this.

    • Carrie Smith June 21, 2012, 8:39 am

      Yes, you are technically right @modestmoney:disqus when making bi-weekly payments, you will make 13 half payments which equals to one FULL extra payment. I might have used words that were confusing, but in essence making bi-weekly payments will tack on one extra payment per year – or two half payments.

      • Modest Money June 21, 2012, 8:44 am

        Oops, my bad.  Yes that would be 2 extra half payments.  I guess I’m not awake enough yet this morning.

  • Daisy @ Add-vodka.com June 21, 2012, 8:28 am

    One thing that was very important to me when taking out my car loan was that the loan was flexible and that I didn’t have to pay a penalty if I paid it off early. I do biweekly payments and it works out for me. I also make extra payments periodically, though certainly not regularly enough.

  • Money Bulldog June 21, 2012, 9:47 am

    Making one extra payment a year is a great tip! Many of us get paid 4 weekly so get 13 paychecks a year. Yet finance payments are often taken once per calendar month meaning we only make 12 finance payments a year. So it’s easily affordable to make the extra payment!

    • Carrie Smith June 21, 2012, 12:49 pm

      I agree @cbe4b229b0508b7a716b622e07a02180:disqus you almost don’t notice the extra payment since it’s divided into smaller chunks.

  • TB at Blue Collar Workman June 21, 2012, 10:56 am

    Rounding up the payments is definitley what my wife and I have done to pay off loans in the past. It doesn’t change our monthly bottom line very much, but that extra $45 or whatever adds up over the year for sure! We ended up paying off a huge credit card debt we used to have faster than expected by rounding like that.

    • Carrie Smith June 21, 2012, 12:50 pm

      Rounding up the payments, can be used towards any type of debt, it’s true. Just like you did with your credit card debt @58d5159fad64e65604c87df1967d15b5:disqus Congrats on paying down your credit card!

  • From Shopping to Saving June 21, 2012, 10:59 am

    Reading this article made me very appreciative that I do not have a car loan. My parents bought me a car when I was 16. Although it wasn’t one I *wanted* they surprised me and I am really happy they did. It saves gas. I have a Toyota Corolla :)

    This gave me an idea for a post!

    • Carrie Smith June 22, 2012, 8:36 pm

      My dad helped me pay cash for my first car too – I paid half and he paid half. That’s definitely the way to go. Also, I’m glad I can be of inspiration :)

  • Jenna from Adaptu June 21, 2012, 1:17 pm

    Buy a used car and pay cash!  So thankful I don’t have a car loan.

  • Robb June 22, 2012, 1:22 am

    I like your Porsche Carrie! ;-)

    My truck has been paid off since 2007 and I love not having that bill every month. Obviously at some point I’m going to need a new vehicle and what I’m going to do is set aside a certain sum each month – sort of like tossing money into a coffee can – as a “car fund”. It adds up quick too, if you save 415 a month in a little over 2 years you’ll have 10k which will get you a nice used car.

    • Carrie Smith June 22, 2012, 8:39 pm

      Oh yeah @twitter-56905548:disqus you know I love my Porsche! LOL Setting aside money every month towards a new car is a great idea. That’s what I’m starting to do now, just in case something happens with my car or I need to get a new one soon.

  • Jess @JessCantCook June 22, 2012, 8:43 am

    Great post! I’ve started rounding up and I also created a separate savings account (I use ING Direct) where I deposit Amazon sales, reimbursements from work, etc. that I use at the end of the month to make an extra payment.

    • Carrie Smith June 22, 2012, 8:40 pm

      That’s a really good idea @36fbd8716e8d6965e2090b77704a9e50:disqus  I use ING Direct for my savings too. Although for smaller transactions/savings I love my ImpulseSave account. But either way, as long as your saving money, you’re moving in the right direction.

  • See Debt Run June 24, 2012, 12:10 pm

    We have one car loan (we have two cars- Jeff has a smaller car that he drives to work daily and we have a family car that we use when we’re towing kiddos) but it’s still pretty high at $7000!  It’s the next thing we’ll tackle hardcore after getting out of credit card debt.  These are all great ideas.  I think we could make a couple extra payments throughout the year, even while we are paying off credit card debt, and it won’t affect our consumer debt pay-off goals if we are smart about budgeting!  Thanks for the motivation, Carrie!
    -M

  • Sophie@Internet Business Ideas July 24, 2012, 7:34 am

    I have been in trouble for years from the day I applied this car loan and still not finding a clue. After reading this post and its tips especially the extra money collecting tip I think I will be able to deal with it.

  • Sophia January 17, 2014, 1:34 am
  • Sophia January 17, 2014, 1:34 am

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