Paying Your Car Loan Quickly - What You Need To Know
Paying off a car loan off early is an attractive option. On the surface, it means you don't owe any more and your car is yours, to do with as you please. Paying off quickly also saves you money on interest and improves your credit rating. Bill Tsouvalas from Savvy Finance sheds some light on what you need to know about paying off your car loan quickly.
1. Know your amount owed
If you've taken out a long term car loan for say, 3, 4 or 5 years, you may have a rough idea of what is still owing. You should get the exact amount, along with all your vital information about fees and charges, before you act.
2. Check whether penalties apply
Sometimes financiers will impose penalties if you decide to pay off your loan early. Paying off your loan early means lenders may forgo a large amount of interest, so they penalise you for shortening the length of the loan. Make sure in your research you know exactly what your position is when it comes to paying off early.
3. Ask if you can make additional payments
If your lender doesn't charge penalties for paying back early, you may want to know if you can increase your payments. You can do this by either making your payments more frequent or paying back large lump sums from time to time.
One way is to schedule fortnightly payments instead of monthly payments. The amount may end up being the same, but you are actually making 13 monthly payments (broken down into 26 fortnights) per year instead of just 12. You can also reduce the life of the loan if you make one extra monthly payment a year as a lump sum.
4. See if you can pay back more on the principal
Some lenders and financiers charge a fixed monthly interest. If it's within the terms of the loan, this may allow you to pay back extra on the principal amount without incurring more interest in the long run.
5. Talk to a financial professional
If you're thinking of paying off a loan quickly, it's best to talk to a financial professional about your options. They may suggest refinancing options if the terms are favourable to your position. It's best to let the experts make the call, as they know how car loans work best.