Buying Your First New Car? 3 Tips To Pay Off Your Auto Loan Faster
From driving to work and transporting the family around to getting yourself to school, the importance of a reliable automobile is easy to see. Unfortunately, owning a car comes with a great deal of financial responsibilities. Considering the average cost of a new car is $33,560, you will most likely need to finance this large purchase. Thankfully, banks and finance companies offer numerous loan programs to pay for your new vehicle over a period of a few years. Of course, making car payments each month can become stressful, so finding ways to pay off your loan in a more efficient manner is smart. Using these tips, you may be able to pay off the new car loan in a shorter amount of time.
Make Bi-Weekly Half Payments
Making an auto loan payment each month is common, but you can reduce the time it takes to pay off the loan by making bi-weekly half payments instead.
For example, if your car payment is $600 per month, consider paying $300 every two weeks of the month. This still allows you to make the $600 payment, but paying every two weeks will place a larger amount of the money towards the principal of the loan. Although you are not paying any more money per month, making bi-weekly payments for an entire year ensures one extra payment goes towards your payoff balance.
Making bi-weekly payments will not only save you thousands of dollars in interest fees, but it can reduce the number of months needed to pay off your loan. Be sure to consult your finance company to determine if they permit these bi-weekly payments.
Make Extra Payments
Paying all of your bills and living a decent lifestyle can be difficult for many people, but you may be able to find a little extra money over the course of a year. Every few months, send in extra money to your auto loan.
While this may be challenging, making one or two extra payments towards your auto loan can save you a great deal of interest fees over the entire loan period. Also, making these extra lump payments can reduce the total term of the loan. Unfortunately, you may not know where to find this extra money, so consider the following:
- Tax Refunds – If you receive a tax refund, make sure to apply the money directly towards your auto loan. You may be inclined to take a vacation or splurge on something fun with this money, but using it as an extra payment towards your auto loan is a smarter investment.
- Gifts – For one year, save up all the cash you receive from birthdays and holidays. At the end of the year, send the money in towards your auto loan.
- Gigs – If time permits, consider completing some work on the side to earn a little extra money. Do some freelance work, sell old clothes, books, and household items, or offer to pet/house sit for neighbors and friends. Save up all of your income from these side gigs and send off to your auto loan company at the end of the year.
Round up Payments
In most cases, your car payment will not be an even number, but rounding up your payment can reduce the amount of time it takes to pay off the loan. You will need to budget accordingly, though, since you may not be able to afford rounding up too much.
Rounding up a few dollars each month can reduce the number of months it takes to pay off your loan, but it can also make your very last payment incredibly low. In addition, rounding up your payments can give you a cushion against the possibility of negative equity if you ever decide to sell or trade in your car for a newer one.
Financing a new car may seem like overwhelming debt, but it can be a necessity for many people. Using these tips and a bit of discipline, you can pay off your auto loan in a more efficient manner.
For more information, talk with different auto financing companies and dealers, such as Western Avenue Nissan.