Besides mortgages, car loans are the largest responsibility many people have. While car loans payments can be stretched for up to eight years, paying off your loan earlier than the set period can help you cut back on its cost by reducing the interest the loan accumulates.
The good news is that you don’t need to have loads of money to finish your car loan earlier. With a few tweaks to your budget and some smart choices, you can pay your car loan faster.
If you intend to pay your car loan earlier but don’t know where to start, this guide can help you with some practical tips that you may want to consider.
The process and the requirements for accessing a car loan are almost similar to other loans. When you apply for the loan, you receive it as a lump sum to pay off the vehicle, and it becomes yours to drive.
However, unlike personal loans, car loans must have collateral which is the car you buy. That means if you default on your payments, the bank can seize your car to recover its money.
Like in mortgages, you will be required to have some down payment when applying for a car loan because many financial institutions do not fund car purchases 100%. If you are unsure of where to start, this resource from select can help you understand how car loans work and where to get the best deals for vehicle financing in Australia.
Round Off Your Payments
You might not have a lot of money to pay off your loan in lump sums, but you can round off your repayments to the nearest hundreds. For example, say the bank requires you to pay $340 every month; you can choose to round off the figure to $400.
While the extra $60 may seem like it can’t make a big difference, it can have a significant difference in the long run. Any reduction in the number of months makes a difference in the interests you pay on your loan.
Pay Using Windfall Money
Everyone comes across money they didn’t expect to find at some point. It could be a work bonus, money gifted on a special occasion, or for the few lucky lottery winnings. This unexpected cash is usually referred to as windfall.
While it could be tempting to use this money to give yourself a treat, you can make better use of it by using it to pay off your loan if you are keen on settling your loan earlier.
Refinance Your Loan
Many people make the mistake of falling for a bad deal when they don’t take due diligence when taking a loan in the first place. If this feels like you, there is some good news for you. You do not have to stay with a bad lender.
As your credit score rises, you may realize that you can access cheaper loans from a different lender, which you can take to refinance your existing loan. Servicing a loan with lower interest means you can allocate more money to paying back the loans than you would with a high-interest loan.
Lower Your Spending
There is always some expenditure you can do without. For example, if you are used to eating out, start preparing your meals. You may be surprised by how much you can save by preparing food at home.
While cutting down on some of the things you love can feel like too much, it can help you get off debt quickly so you can have enough money left over to enjoy the things you love without having to worry about servicing a loan.