Paying off your car loan can seem like an expensive, lengthy process, but there are ways to chip away at your debt and decrease the amount of time it will take you to pay it off.
Let's say you pay $551 per month on a loan of $32,187 at an interest rate of 6.19%. That means you'll pay off your car loan debt in 70 months, or a little under six years, and pay $6,214 in interest.
If you increase your payment by $25 per week, or $100 per month, and pay $651 instead of $551 at the same interest rate, you could decrease your repayment period by a full year. You'd also save $1,147 in interest.
Even if you devote an extra $25 per month, so you pay $576 instead of $551, you could shave three months off of your repayment period and pay $334 less in interest.
In the first quarter of 2019, the average monthly car payments increased to $551 and $407 for new and used cars, respectively, and the average interest rate on car loans reached a high of 6.19% over an average 69-month repayment period. Your interest rate will vary based on your credit score, the term of the loan, and the age of the car being financed.
In the first quarter of 2019, borrowers took out an average of $32,187 for new vehicle loans and $20,137 for used-vehicle loans. That can feel daunting. But "anything you can contribute above your monthly payment is going to help you pay off that loan sooner," says Ronald Montoya, senior consumer advice editor for Edmunds.
For 33-year-old David Entenza of North Bergen, New Jersey, splitting his monthly car loan payment in two made all the difference.
"My monthly car payment was $377 per month, but I would typically round up to $400, sometimes even $500 or $600 if I had extra income that month," says Entenza. By making biweekly payments, Entenza says he was able to put more towards the principal.
Entenza also put extra income from his tax returns and his side hustles towards his car payment. Handy work and shoveling snow during the winter contributed an extra $100-$200 per month.
"If your budget will allow it, that [little bit extra] would be really helpful," says Montoya.
By making biweekly payments and scraping together extra income, Entenza wiped out roughly $20,000 worth of auto loan debt he'd accrued for his 2012 Toyota Corolla between 2012 and 2015, cutting his repayment time down by approximately two years.
Paying often and even a little extra reflects well on you, and it can benefit you in the long run.
Maintaining constant activity on your account shows your lender that you intend to pay off your loan in full. Your lender may even feel inclined to make you a payoff deal, which is a quote for a one-time installment payment, plus interest, to pay off the remaining debt when you have a manageable amount left on the loan.
"If you are close to the end of the loan and you feel like you're able to pay it off in one installment, it's definitely worth giving [your lender] a phone call to calculate a payoff number for you," says Montoya. "They might be able to reduce the interest rate and give you a payoff amount so you can be done with the loan."
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