The answer to the "best" way to pay off a car loan depends on your situation. What are you looking to get out of paying off your car loan – credit repair; not having a monthly payment; owning the car outright? The answer to these questions can help you choose how to best pay off your car loan in your case. Let's take a look.
Paying Off Your Car Loan For Credit Repair
If credit repair is your goal, a slow and steady repayment plan suits this situation. Payment history is the biggest part of what makes up your credit score, so the more consistent, on-time payments you can show, the better. This goes for all your bills, not just your car loan.
This doesn't mean stretching your loan out longer to make more payments. Just keep paying as your contract states and keep up with your other payment obligations, too.
Paying Off Your Auto Loan Faster
If you just want to get to ownership, and want to get out of your loan as quickly as possible, there are a few methods you can employ, plus they have the added perk of saving you money in most cases.
- Paying extra – Paying a little extra whenever you can is a wonderful way to repay your car loan a little faster, and to save money in interest charges. Interest accrues based on your loan balance so the more you pay quickly, the less interest you pay. Anytime you have an extra $20 or more, add it to your monthly car payment.
- Rounding up – In this method you pay off your loan more quickly by rounding up to the nearest whole. So, If your car loan payment is $416.77 a month for 60 months, round up to $500 a month. This way, you're paying an extra $83.23 a month, and you can pay off your loan in around 50 months – that's nearly a whole year early!
- Bi-weekly payments – Bi-weekly payments mean splitting your payments in half and making them on set days, around the first of the month, and the 15th of the month. You may need to adjust your payment due date or adjust where you split the payment to fall, but by making a half payment every two weeks, you actually end up making 13 payments a year instead of 12.
Refinancing Your Car Loan
If you simply need to pay off an expensive car loan but don't mind having a loan, refinancing might be the option for you. If you're eligible to refinance your vehicle you can pay off your current loan and get one with a longer loan term or a lower interest rate to save money each month.
You must qualify to refinance. Typically, this means you need to have improved your credit score or have good credit, and your vehicle and loan must fit the lender's parameters. Many people choose to refinance with a new lender, but you should see if your lender has options for refinancing, especially if you have a good history with them.
Need a Different Vehicle Financing?
If your current loan situation isn't working out, and you don't qualify for refinancing, you can still trade in your car for something with a more affordable loan you can pay off more quickly. Remember, a short loan term with payment you can comfortably afford is the way to go. This way you're not overspending on interest just to get a lower payment. Additionally, making a large down payment upfront can lower the amount you finance, and help you have less to repay.
If you're worried about bad credit coming between you and a car loan, we want to help. Here at Auto Credit Express, we work with a nationwide network of special finance dealerships that are signed up with subprime lenders to help borrowers in many credit situations. Simply fill out our free auto loan request form to get started today.