Whether you’ve already set up your car loan or you’re simply considering your options, paying off your loan faster is financially best. That’s because the faster you pay your car loan off, the less you pay in interest, and the shorter the length of your loan.
If you want to speed up your repayment rate, there are some straightforward ways to do it. Here are three tips to minimise the cost of your car loan and help you to accelerate your way clear of car loan debt.
Quick takeaways:
- Increasing the frequency of your repayments can be a smart and manageable way to reduce the cost of your car loan.
- Don’t set-and-forget your car loan – if you find yourself with a little wiggle room in your budget, find out how much that little extra on your car loan could save you.
- Give your car loan a health check at least once a year – a lot changes in 12 months and its worthwhile reviewing your car loan to be sure you are getting the best value for money.
Make fortnightly rather than monthly repayments
If you pay your car loan off in monthly installments, you will make 12 payments over the course of the year. But if you receive your pay weekly or fortnightly then you may find it easier to manage the cost of car loan repayment in line with your income.
So why not consider switching to fortnightly payments? Simply split your planned monthly payments in two and switch to paying this amount on a fortnightly basis. The cost of repayment will increase slightly each month, but the result is a significant benefit with a full additional payment across a year. And of course no matter what your interest rate or car loan amount, shortening the life of the loan will result in a drop in the amount of interest owed.
Increase the amount you are paying off on your loan
As a general rule, increasing the amount you pay on your car loan isn’t a good idea if you have debt of another kind with a higher interest rate, or if you will incur penalties from your car loan provider that exceed any savings that can be made from the additional payment. Make sure you review your situation carefully before proceeding.
There are basically three ways that you can increase your repayments on your car loan and reduce your interest costs.
Make a single additional payment
A one-off opportunity to put more money onto your car loan should not be ignored. If you have a windfall or find yourself with cash to spare, consider making an extra payment.
Make multiple or annual additional payments
You may be at the limit of your scheduled repayment ability but be aware that an annual bonus or additional income could boost your payments. If this is the case you may find value in a car loan structure that allows you to make annual or regular lump sum payments. Your provider might restrict how much you can pay but you can be sure that any amount you do pay will lead to repaying your car loan faster.
Increase your regular repayments
It’s always important to build your budget carefully when you’re setting up a car loan. This allows you to make sure that both your car loan repayment and your car running costs are affordable. One opportunity for shortening the term of your car loan is just to push your budget a little further and round up the suggested repayment amount.
Is it time to refinance?
Car loan agreements can be long term commitments and if your circumstances change then you might want to review your options. It’s worth scheduling in a health check of your car loan at regular intervals so you can be sure you’re getting the best value for money.
Regularly reviewing your car loan could reduce your costs in a number of ways. These could include: negotiating a reduction in interest rate; the opportunity to increase the value or frequency or repayments; reviewing restrictions around lump sum payments; or even paying off a chunk of your loan and refinancing for a smaller amount.
If you want to review your car loan options, make sure you ask your existing provider for the exact amount that you would need to pay in order to clear your car loan. This is the number that you need to use in any negotiations. Make sure you keep a note of every vehicle finance company that you speak to and what they offer you. That will allow you to review all your options and make an informed decision about the most cost effective way to move forward.
Whether you choose to increase your repayments or you just take time to review your options, why not take a look at the structure of your car loan today? Paying off your car loan faster makes smart financial sense. It can reduce the cost of interest and means that you will free up your cash sooner in order to put it into other things that are important to you.
