So if you pay your loan off early before the term ends, you can actually save money by not having to pay as much interest. To find out how much money you could save in interest, speak with your lender or utilize an auto loan calculator.
Here are some strategies that are sure to quickly cut down your car payment. If your current auto loan came with high interest rates and other monthly fees, refinancing your loan could potentially give you better terms and a lower payment. You should be able to qualify for better loan terms as long as your credit score has increased since you applied for the loan. Auto loan payments can be costly, so I understand why it can be tempting to skip a payment or two if your lender gives you permission.
But know that skipping payments will take you further away from your goal of an early payoff by lengthening the term of your loan and making you pay more in interest. This is what you will pay every two weeks.
Now, your loan balance will continue to decrease and you will pay less interest on the remainder of the loan. You might already use your extra paychecks to buy new clothes or treat yourself to a spa day, but consider giving them a new use and pay off your car loan debt. Another way to pay your loan off faster is by rounding your payments up. This strategy could potentially save you hundreds of dollars in interest. This is another great way to save big on interest.
Sometimes car buyers can agree to include add-ons in their auto loans without realizing how much extra they cost. Common types of add-ons are GAP waivers, service contracts and warranties.
If you like the idea of lowering bills you already have, think about what extra expenses you could temporarily cut out from your life. Maybe you could ditch cable or your landline or another monthly payment. You could also cut down your dining out, entertainment or shopping budgets to free up some extra cash to pay your loan off. If the fee is more than the savings, it might not be worth it. Paying off your car loan early frees up a good chunk of extra cash to keep in your pocket.
Which one has the highest interest rate? That way you save more on total interest owed. Any time you pay off a debt, it lowers your total credit mix and open accounts, which can cause a dip in your credit score.
Most of the time, this drop is temporary and you should see a rebound within a few months. Lenders are more concerned that you manage your debts responsibly.
Before completely paying off your car loan, review your options to see which one makes the most sense for your financial situation, like:. This is a big financial decision and you should give it enough careful thought, just like you did when you first got the car loan.
Consider paying off your car if:. Not everyone has the financial power to pay off a car loan early. Refinancing your car loan gives you the chance to lower your interest rate and reduce how much interest you pay over the life of the loan. Dori Zinn has been a personal finance journalist for more than a decade. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy. She has won several national and state awards for uncovering employee discrimination at a government agency, and how the financial crisis impacted Florida banking and immigration.
Select Region. United States. United Kingdom. Dori Zinn, Rachel Witkowski. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Learn More. Was this article helpful? Share your feedback. And the savings just continue. The early bird gets the savings, or however it goes. Some lenders will let you skip your payment once or even twice a year. Resist the temptation. Skipping payments will lengthen the term of your loan and cost you more in interest. This is where you take your loan and negotiate a new monthly payment and pay-off date. Otherwise, refinancing makes little sense.
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