Best Tips to Pay Off Your Car Loan Faster
Car loans have changed the way people in India think about owning vehicles. Many urban Indians don’t think it’s a big deal to buy a car today since banks and other financial institutions make it easy for them to get car loans.
It’s easy to pay car loan EMIs each month in addition to other monthly bills. But, it costs more in interest. If you have the money, you should try to pay off the car loan early to save money on interest.
Should You Pay Back Your Car Loan Early?
It might seem like a good idea to pay off your loans early, but there are some things you should keep in mind:
Find out your existing balance and any early repayment penalties
Focus on all aspects of your car loan before deciding if you want to pay it off faster. Some lenders make it hard to pay car loans as early as possible, as they’ll get less money in interest. If your lender lets you pay off your loan early, ask if there’s a prepayment penalty.
Next, ensure that any additional payments are applied to the loan’s principal by checking your balance and your account. Some financial firms will automatically put extra fees toward interest instead of the principal, or they will hold the money as a credit for your next payment.
Calculate how much money you will save
Once you know how much you owe and if your lender has prepayment penalties, you can use an auto loan calculator to figure out how much you’ll save if you pay off the loan early. Make sure that the money you save is greater than any prepayment fees you may have to pay.
Even if you don’t save much by paying off your loan early, there may be other advantages that make it worth it. For example, paying off your loan early could help you improve your credit score and give you more money to spend each month.
Tips for Paying Off Your Car Loan Quickly
No matter how much your monthly car payment is, there are five different ways that car owners can pay off their car loans quickly:
Reduce your loan duration
The length of time a borrower has to pay back the amount borrowed from the bank is called the loan duration. Most terms are measured in months, and they can last anywhere from 24 to 84 months. The longer the term, the less you’ll have to pay each month.
But smaller monthly payments don’t mean you’ll pay off your car loan faster. Car loans can take up to seven years to pay off in full, which is a big chunk of your main working life. Choose to shorten your loan’s term to a number that best fits your personal financial goals. Be sure to use a financial calculator to figure out your monthly payments.
Try a different budget
To pay off a car loan faster, you must put your current income toward your most important financial goals. If you don’t already have a spending plan, sit down and write down all the money you expect to make this month. Make categories for your expenses, like your car loan.
Find a Side Hustle
The best way to produce wealth is to increase your income. Your ability to pay off your car loan more quickly will increase with your ability to earn more money. Utilize your resources to find ways to increase your monthly income. Ideas for increasing your monthly income include the following:
- Taking on a second job
- Freelancing
- Putting in extra hours or weekends at your primary job
- Hold a garage sale
- Creating and promoting products
Make sure to pick a sustainable option to lessen exhaustion and burnout.
Refinance
One of the fastest ways to pay off a car loan with a high-interest rate is to refinance your current auto loan. As a person’s credit history gets longer and their credit score goes up, they may be able to get better, lower interest rates.
Pay additional amounts
Unless you make extra monthly principal payments, the amount owed on your auto loan won’t be paid off any faster. Most people select one of three methods to make additional payments on their car loans:
- Paying Twice a Month: Making two payments that are greater than your monthly bill will help you pay off the principal more quickly while also lowering the interest that has accumulated.
- Paying the Principal: Make principal payments, not interest payments, which reduce the total cost of the vehicle.
- Rounding Up: Add a monthly payment to the rounded amount of your existing car loan.
Final Thoughts
Paying off your car loan early might not always be the best course of action. The savings won’t be worthwhile if you have to pay prepayment fees or risk affecting your credit score.
The two best ways to reduce the length of your car loan are refinancing or simply making more payments. Even if it only amounts to a few extra amounts per month, you can lower your debt and reduce your loan tenure.
For more information, you can visit the Piramal Finance website and read more on car loans and car loan EMI.