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I’ve been in the same situation you’re in: You’re thrilled to be driving that new car, but you’re not keen on those monthly payments. That little bit of interest on to every bill is quickly adding up, and you’d like to pay off the remaining balance instead of waiting for the remaining term. Here’s some advice to make sure you successfully pay off your car loan sooner than scheduled.
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Why you should pay your loan off early
You’re already paying enough money every month on your loan to eliminate it on its scheduled end date, so what benefit is there to paying extra cash now when you don’t need to?
According to LendingTree’s resource site Magnify Money, paying off the remaining balance you owe on your car before its term concludes can save you money on interest. By paying off the car ahead of schedule and thus having fewer monthly installments, you’ll pay less money on interest every month — which is a big deal if you got a bad rate when you financed.
How to properly pay off your car early
There’s a difference between reducing your remaining loan balance through paying down the principal versus simply making your normal payments ahead of their due dates. Make sure you’re directing that extra cash solely to the principal balance, not the next payment you owe. Otherwise, you’ll just be ahead on payments, not have fewer of them.
When you have enough money to cover the remaining principal, make sure you request a payoff statement from the lending institution to avoid any confusion. While you’re at it, ask if there’s an early payoff fee. They’re not common, but they can penalize you for reaching the finish line early.
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Ways to save up money
The most effective way to pay off your car loan early is, simply, to put more money on the principal. If you have extra money sitting in your savings account, you can simply make some extra payments with it.
If you don’t have expendable cash lying around, you’ll need to reroute those funds by reducing other inessential expenditures. Here are some ideas on how you can do that, such as eating at restaurants less.
You may have to squeeze your budget a bit by trimming your spending to gather extra cash, but it’s definitely worth living frugally for a year to save money in the long run.
Aaron is unashamed to be a native Clevelander and the proud driver of a Hyundai Veloster Turbo (which recently replaced his 1995 Saturn SC-2). He gleefully utilizes his background in theater, literature, and communication to dramatically recite his own articles to nearby youth. Mr. Widmar happily resides in Dayton, Ohio with his magnificent wife, Vicki, but is often on the road with her exploring new destinations. Aaron has high aspirations for his writing career but often gets distracted pondering the profound nature of the human condition and forgets what he was writing… See more articles by Aaron.
