Get Started
Talk to our team to start saving 800.260.5355
Car loan terms in the U.S. typically range from 24 to 84 months, with the average sitting around 68 months, according to Experian’s State of the Automotive Market Finance Market report. Opting for a loan term on the longer end can be appealing because it makes your monthly payments more affordable. However, it can lead to higher costs overall.
If you’re in a situation where you can put some extra money towards your auto loan, you may wonder, “How can I pay off my car loan faster and save some money?” In this guide, you’ll find several popular strategies for paying off a car ahead of schedule along with what to consider before doing so.
Before you start brainstorming how to pay off your car loan faster, consider if it’s the best use of the extra funds you have available.
Additionally, consider your larger financial situation and goals, such as:
If your auto loan is your highest-interest debt, you have a well-stocked emergency fund and the rest of your finances are on track, paying off your car faster may be the next logical move to cut costs.
The best way to pay off your car loan early will depend on your financial situation and preferences. Here are a few ways you can go about it.
One way to pay off your car loan faster is by paying half your monthly car payment every two weeks. By the end of the year, you’ll have made 26 payments — the equivalent of 13 months’ worth of payments.
Because you’re paying half of the balance two weeks early each month, less interest will accrue. As a result, you could lower your loan cost and shorten the repayment term. For example, if you have a $35,000 balance on your car loan, an 8% interest rate and 60 months left on your term, your monthly payment amount would be $710. In this situation, bi-weekly payments could shave six months off your loan term and about $800 off your interest costs.
Payment Schedule Comparison
Another approach is rounding up your monthly payments by a certain amount, such as to the nearest $50 or $100. For example, if your monthly car payment is $710, you could instead pay $750 or $800. Doing so could help you pay down your balance quicker and cut down on your interest costs over the life of the loan.
In the case below, bumping the monthly payment from $710 to $800 will save this borrower close to $1,000 and reduce their term by eight months.
Payment Schedule Comparison
If you don’t want to make payments every other week or pay more each month, you could plan to make one extra payment per year. For example, if you tend to have a bit of extra money when you get your tax refund or an annual work bonus each year, you could plan to use it to make an extra car payment. Like the other methods, this approach can help to reduce your interest costs and shorten your loan term.
Did you receive a cash windfall (an unexpected sum of money)? You can use that money to make a lump sum payment toward the principal balance on your car loan. Doing so can reduce your balance and cut down on your time to pay off.
Potential sources of cash windfalls can include inheritances, legal settlements, the sale of assets, tax refunds, gifts, gambling winnings and investment returns.
The above strategies involve keeping your current loan and adjusting your payments, but you can also look into auto loan refinancing to pay off your car loan faster. By getting a new loan with the same term but a lower rate, your required monthly payment could drop. If you continue making the same payments as before you refinanced (higher than what your refinanced loan requires), you could pay down the loan faster. You could also get a shorter loan term which increases your monthly payment but decreases your overall interest costs and time to pay off.
Use our auto loan refinancing calculator to compare possible savings between loan options.
Lastly, you may be able to trim down the costs on your existing loan by enrolling in discounts or removing optional add-ons. Check to see if your lender offers any discounts that apply to you, such as those for being part of the military, enrolling in autopay or being a long-time customer.
Additionally, review your loan contract to see if you have any optional add-ons you want to remove, such as an extended warranty, GAP waiver or a maintenance package. You can use the money you save to make larger payments on your loan.
The following frequently asked questions can help you better understand paying off your car loan early.
Paying an extra $100 per month can bring your principal balance down faster than your normally scheduled payments, shortening your loan term and reducing your interest charges. The exact amount of time and money you’ll save will depend on your loan amount and interest rate term.
The fastest way to pay off a car loan is to request your payoff amount and pay it in full. If you’re not ready to do that, you can opt for other approaches, such as refinancing for a shorter term and a lower rate, making an extra payment each year or making larger payments each month.
You can pay off a car loan early no matter how long or short the term is. Before you do so, check to confirm your loan allows early payoff without penalty.
You could pay off a five-year car loan in three years by increasing your monthly payment amount or making extra payments throughout the loan term. For example, suppose you have a $35,000, five-year car loan with a $710 monthly payment and an 8% interest rate. You can pay it off in three years by increasing your monthly payment amount to $1,097. An auto loan refinance calculator can help you determine how much you should pay each month to hit a three-year payoff goal.
The main disadvantages of paying off a car loan early are budget strains and reduced liquidity for other investments or debts. Putting more money towards your car possibly leaves less for other expenses. Consider if you have enough discretionary income to make the higher payments, as well as if the money could better serve you if used differently.
Explore ways to pay off your car loan faster, save on interest, and reduce financial stress with strategies that help eliminate debt quicker.
