A car loan usually lasts a long time and costs a lot of money. But you can save time and money by following these five simple steps to paying off your loan early.
4 Ways to Save Time and Money on a Car Loan
These days, auto loans almost exclusively use simple interest. In a simple interest loan, interest charges are computed daily based on the loan balance. So, the faster you can reduce the balance, the more money you can save in interest charges over the loan term.
Here are four options for saving time and money on your car loan:
- Split your payments – When you split payments, you reduce the loan balance at the beginning of each month, which means you save money in interest charges for the rest of it. To do this, divide your monthly payment in half, and pay one half at the beginning of each month and the remaining half on or just before your payment due date.
- Pay bi-weekly – Another way to save money and time is by making bi-weekly payments. With this strategy, you make a half-payment every two weeks, regardless of your due date. By doing this, you end up making 13 full monthly payments every 12 months, so you shave a month off your loan term every year.
- Pay more when you can – If a split payment or a two-week schedule isn’t realistic for you, you can still save time and money by paying a little (or a lot) extra whenever you can. Remember, simple interest loans accrue interest based on what you owe, so anytime you can reduce the loan balance, the more you save in the long run.
- Round up what you owe – This method of payment helps you save in interest charges if you can afford to take advantage of it. All you have to do is round up your monthly payment, and stick to paying that amount each month. For example, if your payment is $337.47 for 60 months on a $15,000 loan with a 12.5% interest rate, you could round up and pay $375 a month. Ultimately, this would lead to paying off your loan seven months early and a savings of $743.34 in interest charges. Not bad for less than $40 more a month!
One More Way to Save
If saving time isn’t the issue and you’re looking to save money on a bad credit auto loan, a fifth option you could have is refinancing. If your loan came with a particularly high interest rate due to bad credit, refinancing at a lower interest rate helps you save money.
In order to qualify for refinancing, your credit score has to have improved since taking out your original loan. Additionally, your vehicle needs to meet the lender's age and mileage limits, and your loan amount has to qualify.
You can typically apply for refinancing with your current lender, although most refinancing is done with a new lender.
Working Toward a Lower Payment
Now that you know how to take steps to pay your loan off faster, you can start saving money on your car loan. However, if these options aren’t what you’re looking for, maybe it’s time to try for a new loan on a more affordable vehicle.
There are lenders available that can help borrowers dealing with bad credit. At Auto Credit Express, we work with a nationwide network of special finance dealerships that have the lending resources for those struggling with credit issues.
Fill out our easy, no-obligation auto loan request form, and we’ll work to connect you to a dealer near you. Don’t waste time and money driving all over town looking for a loan – take the hassle-free route with us!