With the rising cost of living, you may be looking at ways you can save money. Whether that means making better choices on everyday costs such as groceries, finding ways to save on essentials such as petrol and electricity, or cutting back on luxuries – it can all help to reduce outgoing costs to make budgeting that much easier.
But what about your car loan? Depending on the type of car loan you have, you may be able to save some money by paying it off early. While that may mean paying out more in the short term, it could lead to substantial long term savings, so it’s worth investigating now to see what options you have available to you.
Advantages of paying off your car loan early
First up, why should you consider paying off your car loan early?
- Pay less in interest: If your car loan allows you to make extra repayments to pay off your loan early, you could save big on interest over the life of the loan. Try using a car loan calculator to find out how much you could save on interest by increasing your repayments to pay off your car loan early.
- Pay less in fees: If you pay monthly fees on your car loan, you could obviously save money by not paying those fees by paying off your loan early. It is worth mentioning that some car loans charge fees to exit early, but we’ll talk about that more in a moment.
- Get out of debt faster: While car loans are a necessary debt for many, it’s always nice to get out from under any type of debt if you can. Paying off your car loan can also help to improve your credit, making it easier to apply for further loans in the future.
- Free up your budget: Once you have paid off your car loan, the money that used to go towards repayments can then be used on something else. Whether that something else is a necessity or a luxury is really up to you.
What may stop you from paying off your car loan early
Okay, so now you know why you might want to pay off your car loan early, what is there to stop you from doing so?
Many fixed rate car loans don’t allow you to make extra repayments. Those that do may charge fees for the privilege. You may also find some car loans don’t allow borrowers to repay their loan early without paying early repayment fees.
If you’re unsure what the rules are regarding extra repayments and early loan repayment on your car loan, contact your loan provider to find out more. You might find you can still save money by paying off your loan early, so it’s definitely worth checking.
How to pay off your car loan early
Time to look at some ways you can work on paying off your car loan early.
- Make extra repayments: As we mentioned earlier, you may be able to make extra repayments on your car loan to pay off your loan faster. This could involve making extra repayments on a one-off or regular basis, depending on the funds you have available.
- Round up your repayments: Even if you can’t add a huge amount to your regular repayments, you can still work on chipping away at what you owe by rounding up your repayment by say $5 or $10. Again, your ability to do this will depend on the type of loan you have.
- Change your repayment frequency: Depending on how your provider assigns payments, you may be able to pay off more of your loan if you opt to pay weekly or fortnightly.
- Refinance your loan: You may find that you can get a much better rate on your car loan by refinancing. However, this will depend on factors such as your current credit rating, the car loan market, and the fees involved in exiting your current loan.
If you want to find out more about your refinancing options, contact Car Loan World today. We can let you know where you stand in the current loan market, so you can work out how much you stand to save by making the switch to a new loan.
TIP: Want to make it easier to pay down your new car loan? Opt for a loan that offers more flexibility, allowing you to make extra repayments when you want, and to pay off your loan early with no fees should you wish to.
