Think what you might do with no monthly car 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 making more frequent payments; regular extra payments; an occasional large payment; a combination of these, and refinancing.
Start off by getting familiar with the details of your current contract, such as the amount, term and annual percentage rate, to help you calculate how to make a faster payoff. Most retail installment contracts use the simple interest approach in which interest is calculated on the principal amount you owe, and the faster you pay if off, the less interest is paid. Also check whether your current lender imposes any prepayment penalties for paying off your car early, which will affect potential savings.
5 Ways to pay off your car faster
1 Pay every two weeks
Some lenders may allow you to make half your monthly payment biweekly, so you make 26 half payments over the year, and effectively end up making an extra full payment as a result. By making 13 full payments each year you’ll knock several months off the time it takes to repay the loan. Paying every two weeks instead of monthly also means a saving in interest charges, as the lender is receiving money quicker with less time for the expected interest to accrue.
2 Add more to your payments
Use RoadLoans’ 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, down payment, APR, the duration of the retail installment 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 period of repayment is shortened and what the savings in interest charges may be. Adjusting the additional monthly 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, five 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 $220.41.
Increase the extra payment to $200 per month and not only has a whole year been knocked off, but $363.87 potentially has 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 yearly, maybe with a tax refund.
Another option is to pay off the outstanding debt in one go and, for that, the payoff amount is needed. The payoff amount, also known as a payoff quote, may be different from the current balance of the note. More interest may have accrued since the date on the statement which needs to be paid as part of the payoff.
There could be other factors that make a difference – a common one is a prepayment penalty. Factors can also include modifications to the contract, such as an extension to the term. Any deferred payments or fees and charges that have been incurred and not paid could affect the payoff figure, too.
A payoff request can be made in different ways depending on the lender, like calling a customer service agent, using an online service or visiting the lender’s branch.
Once you have the payoff amount, there may be a specified due date for payment and preferred steps for the lender to receive it. Sometimes, the exact payoff amount will depend on the day payment is received. By checking the process with your lender you’ll be able to work with them to pay off what’s owed, which clears the path to full ownership of the vehicle.
Car buyers who purchase a vehicle through RoadLoans have their retail installment contract serviced by Santander Consumer USA (SC), which offers a quick and easy auto payoff process with no prepayment penalties to worry about.
If your credit score has improved, interest rates have dropped or you just didn’t get a great deal on a loan first time around, refinancing may be the way to go. Refinancing to a shorter loan term and lower APR may save you money in interest as well as help you pay off the car faster. A shorter term might come with a higher monthly payment, depending on the APR.
RoadLoans’ simple, online auto refinance application takes just a few minutes to complete and you’ll receive an instant loan decision. We don’t, however, accept applications for refinancing from existing SC customers.
5 Keep good habits
Whether you’re changing to a biweekly payment routine, upping your monthly payments or refinancing with a new loan, paying on time will avoid potential fees for late and missed payments which may slow down your efforts to pay off your car.
Making a decision
Buying a vehicle is one of life’s largest financial commitments and paying off your car early, to own it free and clear, will likely give great satisfaction. With numerous options for a faster payoff available, consider which is right for your circumstances, and may result in the greatest benefits.