If you are a Colorado Springs resident with an auto loan that is without a prepayment penalty, you should try to pay off the loan faster. Repaying the loan early makes you the legal and registered owner of the vehicle sooner and also allows you to free up more money for important things such as retirement. Here are some tips on how you can speed up the repayment of your auto loan:
Round up the car payment
If your monthly payment is $287, pay $300. If it is $373, give $400 instead. If $491 is the amount expected of you each month, offer $500. Rounding up the payment is an easy way to pay off the loan faster because you don’t need a lot of money. The small amount you add to the monthly payment may not seem like much, but it makes a huge difference in your remaining balance. If you consistently make rounded up payments, you can successfully shorten your loan term.
Opt to pay biweekly instead of monthly
Another effective way you can pay off your loan faster is by choosing to repay every two weeks instead of every month. Contact your lender and ask if you can make biweekly payments. If you are allowed to do so, do it. This is an ideal option especially if you get paid biweekly too.
How will paying biweekly help with your loan repayment? First, because your payments are more frequent, you have less interest. Also, you will be making 13 payments a year instead of just 12: there are 52 weeks in a year, which allow you 26 half-payments (or 13 full ones). If you proceed with biweekly payments over the term of the loan, you can do away with several months of repayment.
Give one extra payment per year
Blessed with a windfall? Allocate a specific amount to the repayment of your auto loan. This is a particularly good move if your cash flow doesn’t allow you to make the suggested biweekly payments. If you’re not sure you will get a windfall this year, there is another way you can make an extra payment: divide your monthly payment by 12 and add that amount to each payment. The increase in the monthly amount will result in an extra payment for the year.
Give one large lump sum payment over the life of the loan
A hefty lump sum paid at least once over the duration of the loan can shave off months from your loan. If your monthly payment is $500, choose a time to pay $1000 or more at one point. The timing of the payment doesn’t really matter—it is the size of the amount you put in that does.
If you have good credit, auto loan refinancing is something you should seriously consider. Not only will it lower your payment and reduce your interest, but also shorten your repayment period. If you are to refinance, make sure you stick to the original loan term or opt for a shorter one. Otherwise, refinancing will be counterproductive to your goal of paying off the loan faster.
A Final Note
When you make extra payments, specify that you want these applied to your loan principal. If you don’t, it will be applied to the interest, and the extra payments you make wouldn’t help you pay off the loan sooner. Contact the lender to guarantee that all additional payments go to your loan principal.