How to pay off a car early and save money

Family traveling in car paid off early



Think what you might do with no auto payments in your budget. Take more vacations, enjoy more evenings out or build up a savings pot for the future, perhaps. Whatever it is, pay off your car early and not only is that debt behind you, but you may have made a decent saving in interest charges, too.*

There are several common approaches to paying off a vehicle early, which center on the following:

  • more frequent payments
  • regular extra payments
  • an occasional large payment
  • a combination of the above options
  • refinancing

Start by getting familiar with the details of your current contract, such as the amount, term and annual percentage rate, to help you calculate a payoff. Most retail installment contracts are structured using simple interest, in which interest is calculated daily on the outstanding principal. That’s important because the quicker you pay off the principal, the less interest will accrue and the smaller the charge will be. Also check whether your current lender imposes any prepayment penalties for an early payoff, which would affect potential savings.


5 ways to pay off your car faster

1. Pay every two weeks

Some lenders allow you to make half your monthly payment biweekly, which means you will make 26 half payments over the year and effectively add an extra full payment every 12 months. Because you’re paying more regularly, overall interest will be reduced. You’ll also be able to knock several months off the time it takes to repay the debt.

2. Add more to your payments

Use an auto loan payoff calculator to get an idea of how adding extra cash to your monthly payment may help. Enter the price you paid for the vehicle, your down payment, APR, the duration of the contract and the number of months remaining. Alternatively, just enter the original amount of the note into the vehicle price field, without having to enter the down payment as well.

You can then type in a dollar amount as an additional monthly payment to see by how many months the repayment period is shortened and what the interest savings may be. Adjusting the additional payment will indicate just how fast you might be able to pay off the vehicle.

Here’s an example:

Enter an amount of $25,000 with a 72-month term, 5 percent APR and 36 months remaining. Give it a helping hand of $100 as an additional monthly payment and the calculator estimates the time it takes to pay off the car is shortened by seven months, along with total interest savings of $220.

Increase the extra payment to $200 per month and not only has a whole year been knocked off, but $364 has potentially been saved in interest charges.

3. Make a large payment

You might be in a position to pay down a chunk of your note with a large sum from time to time or annually, maybe with a tax refund.

Alternatively, you could pay off the outstanding balance in one go, for which you’ll need the payoff amount. You can usually request this amount from your lender by calling a customer service agent, visiting a branch or going online. It could be different from the current balance of the note if more interest accrues before you get the statement.

Other factors can make a difference to what you will pay, too, such as a prepayment penalty, modifications to the contract, including an extension to the term, and any outstanding deferred payments, fees and charges.

Once you have the payoff amount, there may be a specified date for payment and preferred steps for the lender to receive it. Sometimes, the exact payoff will depend on the day payment is received. You can check the process with your lender and work with them to pay exactly what’s owed.

Customers who purchased a car with RoadLoans, and have their contracts serviced by Santander Consumer USA (SC), can enjoy an easy payoff process and no prepayment penalties.

4. Refinance

Refinancing for a shorter loan term and lower APR is another effective way to pay off a car faster while also saving on interest. If your credit score has improved, interest rates have fallen or you didn’t get a great deal first time around, this may be the way to go. The shorter term will increase the monthly payment, so consider using a refinance calculator to budget what may work. When you’re ready to apply, RoadLoans offers a simple online application and instant decisions. We don’t, however, accept applications from existing SC and Chrysler Capital customers.

5. Keep good habits

Whether you’re changing to a biweekly payment routine, upping your monthly payment or refinancing, paying on time will avoid potential fees for late and missed payments which could slow down your efforts to pay off the car.


Arriving at an early payoff

Buying a vehicle is one of the largest purchases we make in life, and paying it off early can bring great satisfaction along with the potential savings. With numerous options available, think about what changes your budget may accommodate and what offers most benefit.


* These statements are informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance.

RoadLoans is not a credit counseling service and makes no representations about the responsible use of or restoration of consumer credit.



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