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How to pay off a car loan faster Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering you interactive financial calculators and tools as well as publishing accurate and original content, by enabling users to conduct research and compare data for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies that pay us. This compensation may impact how and when products are featured on the site, such as for instance, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage, home equity and other home lending products. But this compensation does affect the information we provide, or the reviews appear on this website. We do not include the universe of companies or financial deals that may be accessible to you.



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4 min read Published 17 August 2022
Written by Kellye Guinan Written by Personal and Business Finance Contributor

Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal financial matters. She's also a full-time employee at her local library where she helps her community access information about financial literacy, in addition to other topics.







Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex subjects into digestible pieces.









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As long as your lender doesn't apply a prepayment penalty and you can pay it off faster, this is a great method to save. It will result in less interest and, once you're done, you'll have a few extra hundred dollars left in your budget every month. But getting there may be challenging. There are several strategies you can use to pay off your loan off more quickly. Even when you are able to however, it can put you in a worse financial position if you aren't aware of your strategy. Six ways to pay off your car loan faster There's no one path to paying off your car loan prior to the timetable. It is sensible to change your strategy. Once you have an idea of how, you are able to make use of a couple of strategies to pay off your vehicle loan faster. 1. Refinancing your loan with a different lender is a great option to pay off your loan quicker. If you choose a shorter loan term, you may have the option of keeping the same monthly payment given that you get a lower interest rate. If you don't pay extra or increase your monthly payments in the first place, you'll be able to pay off your car loan faster. 2. Set up biweekly payments. Although it might seem like a lot, paying twice a month rather than one time will help you get closer to the finish line quicker. This will also reduce the cost of . This is because interest will take less time to accumulate before making an installment -- and also because you'll be able to consistently reduce the total loan balance. This helps you move towards an earlier payoff date, without drastically increasing the amount that you contribute to your loan each month. 3. Make your payments round to the nearest 100. Similar to this, rounding up your payments will result in a minor change from month to month, but will have a significant impact in the overall. By rounding up to the nearest hundred, or, at a minimum, the closest whole number, you will slowly lower the principal amount of your car loan. You will also get ahead of schedule and stay ahead of interest rates and ease you into a faster payment. 4. Opt out of unnecessary extras If you want to opt out of gap insurance, an extended warranty or a service contract for your loan make contact with your provider and cancel them. You'll receive a prorated refund for the remainder while also lowering your monthly payments. However, instead of putting that cash back into your bank account, apply it to your loan. So, you'll owe less overall and will benefit from the lump sum. 5. Pay a larger amount of additional payments Tax returns, bonuses and other huge lumps of cash could be used to pay for your car loan. Any time you can reduce your principal by a few hundred dollars, it's likely worth doing. Like rounding your payments and paying biweekly to avoid the interest from rising. As your loan amount decreases and your monthly payment increases, more will be used to pay for principal, leading to the early payment. 6. Make sure you pay each month, even you're ahead of schedule, you should still pay your loan each month. This will stop interest from accruing and, in turn, more money goes towards principal which will reduce the interest you pay. In addition, making regular payments even in the absence of a need could result in the need to pay the car loan early. When not to make a payment on your car loan early The ability to pay off your car loan early means an extra few hundred dollars in your bank every month. However, in certain situations it could harm your financial position more than you help -- so it may not be the most beneficial move. Do not pay your loan off in a hurry when there is a prepayment penalty. The penalty is basically a way to punish you for not paying your loan in full or fully paying off your loan early. The lender is trying to compensate with the amount of interest that you could have incurred in the event you had kept to your schedule. If there's a prepayment penalty, be sure that it's not more than you would otherwise be paying 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 final month. If you are able to take care to pay off your loan early, you aren't going to substantially reduce costs of your vehicle loan. In this scenario it's best to adhere to the loan schedule. There isn't a lot of debt. While it may seem counterintuitive the credit score you have is calculated based on the kind of debt you've accumulated and the duration of the debts. Because car loans are long-term debt paying on a regular basis for years can help maintain your credit score. A caveat is that making payments to pay off your loan may reduce the credit utilization ratio, which represents approximately 30 % of the credit scores. If you are in debt with other creditors and have high proportion of debt to income (DTI) and you want to get rid of one debt will help boost your score. Strategies to reduce the cost of your car loan refinancing your loan There are two options to reduce the cost of your monthly installments by deferring them or requesting a loan modification. Deferment allows you to skip the payment if you're facing financial difficulties in the short term. Loan providers may give you up to three months of deferment in order to help you get through the. But deferment only moves the payments until the finalization of your loan, so you will need to cover them at some point. You will also be responsible for interest costs, which means that at the end of the day, it is more expensive. Lenders may be less willing to modify the terms of your loan, but it doesn't harm to inquire. Similar to refinancing, it can modify the conditions of your loan through either extending your duration or lowering your rate. If you are able to negotiate an amendment to your loan, you could reduce your monthly payments without the need to find an entirely new lender. The next steps always be the most beneficial option to make the payment on your car loan in advance. If you're subject to prepayment penalties or a potential negative impact to your credit score it will not be enough to justify the expense. But if you want to eliminate debt, eliminating car payments is among the fastest ways to make room in your budget. Refinancing -- or just making extra payments -- are the best way to pay off your car loan more quickly. Even if you only pay an extra few dollars per month, you'll be able to decrease your debt and cut a few months out of your loan. Learn more


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Written by a Personal and Business finance Contributor

Kellye Guinan is a freelance editor and writer with more than five years of experience in personal financial matters. She's also a full-time worker at her local library in which she helps the community get information about financial literacy, as well as 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 through providing concise, well-researched, and well-studied information that breaks down complex topics into manageable bites.






Auto loans editor




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