How to Repay Your Car Loan Prudently So That You Can Become Debt-Free Faster

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Cars are an inescapable fact of life in America as it is a rare family that can do without one. According to, more than 5.3 million passenger cars were sold in America in 2018. Most vehicle sales, however, were bought with loans from banks and private financiers because most people simply do not have the ready cash saved up to buy them outright. Auto loans are generally regarded as bad or unproductive debt as cars tend to lose a lot of value after being bought and do not fall into an investment class of assets. According to automobile experts, a new car loses around 20% of its value, the minute you drive it off from the dealer’s showroom. Even though you may be forced to take a car loan to buy your next vehicle, there is no need for it to add to your existing debt woes if you can pay it off as quickly as possible, even ahead of the schedule. By doing so, you also reduce the amount of total interest that you pay and also boost your credit score. Some smart tactics that you can use to pay off your vehicle loan faster:

Pay More than the Minimum Amount Every Month

The easiest way of paying off your car loan faster is to make sure that instead of just paying the amount due every month, you should try to pay as much extra as your income permits. These extra payments have the effect of reducing your principal so not only do you repay your loan faster but you end up paying less interest too. A proven method of doing so is to round off the payment you make every month. For example, if you are required to pay $255 every month, you should try to pay instead, $300. By doing this, you will be paying an extra $45 every month, resulting in a total of $540 over the course of the year. If you are sure of having a cash surplus every month, you can raise the minimum due amount at the time of entering into the loan agreement so that the loan period is shortened from the beginning itself.

Make a Payment Every Two Weeks Instead of a Single Monthly One

Normally, all car loan agreements require you to pay the specified amount once every month, which means that over the course of the year; you end up making 12 such payments. However, if you follow a system of making biweekly payments, you will end up making 13 such payments because every year has 52 weeks. Making half the monthly payment every two weeks also reduces the stress associated with making the payment by the due date and ensures that your interest expense is kept at the minimum. The extra payment that you make over the course of the year acts to repay the loan ahead of its schedule.

Pay the Monthly Amounts Electronically

Because of the hectic lifestyles that most people follow, it is very easy to miss the due date for making the monthly payment. When this happens, the lender charges a late payment fee that can be usually quite steep and your credit score also takes a hit according to a consultant at, a leading online debt relief agency. By issuing standing instructions to your bank or credit card, you can not only eliminate the hassle of having to make a physical payment every month but also ensure that you never miss a payment. Many lenders are also willing to extend a discount on the rate of interest for lenders willing to make electronic payments as their burden of tracking the payments is lessened.

Apply Windfall Gains to the Loan Repayment

During the course of the year, there can be a number of occasions where you get windfall earnings. These could be in the form of a bonus, a lottery win, a raise, a birthday gift, or even a tax refund you may have forgotten about. Instead of splurging on an evening out, if you can use the money to repay your car loan, you will find it easier to retire the loan before its scheduled end. What’s more, you will also be able to reap the benefits of some extra interest saved due to these unscheduled repayments.

Refinance the Car Loan

It is not uncommon for borrowers to find themselves locked in a five-year loan agreement at a rate of interest that is quite high because no enough shopping for the best rate had been done, the rates were higher at that point in time or your credit score was relatively poorer. If you discover a lender who is willing to extend a loan to you at a lower rate of interest, it can be productive to refinance the original loan with a new loan. However, before doing that, you should read through the terms and conditions of the existing loan to find out whether there are any penal charges that the lender will charge for prepaying the loan. You can also use the refinancing route to collapse your repayment period so that even if you end up paying a higher amount every month than before, you can pay off the loan more quickly and own the car without any liabilities. By shortening the loan period, you can save significantly on the interest expense.


While the rewards associated with paying off the car loan in a shorter period of time are well established, it is essential that you examine the loan agreement in detail to find out if there are any penalties that can be charged by the lender, which can either reduce the overall benefit or even negate it completely. Depending on the amount of the prepayment penalty, it may not make sense to make any prepayments on the loan. The structure of the loan is also important as if it has the interest pre-computed, you will not be able to save any interest expense even if you pay off the principal early. However, if your loan is structured in such a way that the interest is only calculated on the outstanding amount, you will be able to benefit by paying off as much as you can as fast as possible.


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