How to pay off your car loan faster

First published 03 December 2018, 12:00 PM

If you took out a car loan to fund the purchase of your new vehicle, it’s a good idea to pay it down as soon as possible. There are a few ways you can do this:

First thing’s first…

Know exactly how much you have left to pay on your loan, how much interest you are being charged and whether you’ll incur any penalties for making extra repayments or paying off your loan before the loan-term.

Round up your repayments

Your lender will automatically divide up your repayments over the life of the loan. Chances are, your repayment will not be a round number - round up your repayments to the next round number and you’ll pay off your loan faster.

Increase your repayment frequency

Generally, your car loan requires you to pay principal and interest. The good thing about this is that any extra repayments you make in the first few years of your loan can shorten the life of the loan and reduce the overall interest you pay.

If you can’t pay more, though, try to pay more often. There are 12 months in a year, but there are 26 fortnights. If your loan is set up with monthly repayments and you divide these in two and make payments every fortnight, you'll make the equivalent of 13 monthly repayments every year - that's an extra month's repayment. If you do this over the long-term, you could shorten the length of time you are in debt.

Be sure to check your loan with your broker though as some lenders calculate true fortnightly repayments so this does not apply to all cases. And, not all lenders will allow you to make extra repayments.

Make lump sum repayments when you can

If you come into some money, whether it be a tax refund, or work bonus or you sell something, consider putting this money towards your loan. Making extra repayments is a good way to protect yourself in the event that you miss a repayment in future.

Make money off your car

If you have the time and resources to do so, you may want to use your car to earn an income. There are platforms which will allow you to rent your vehicle to others when you’re not using it.

Alternatively, you can join a ridesharing service and work in your free time to earn extra money which you can put towards your car loan.

Refinance your car loan

If you’re in a healthy financial position, you might be able to negotiate a more competitive interest rate on your car loan. If you do, try to keep the same level of repayments you were previously required to make so that you can pay off your loan faster.

Speak to your lender and see what your options are but make sure you’re not increasing your loan term and don’t have to pay extra fees. If you also have a car loan, it may be worthwhile making an appointment to speak to your local mortgage broker to find out if consolidating your debts would be a suitable option for you.

If you need help paying down your debt, speak to your local financial adviser who can help you manage your cash flow and help you outline clear strategies to pay off your loans faster. If you think you might want to refinance your car loan or consolidate your debt, your local mortgage broker can help you find a loan product to suit your unique financial needs and goals.

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