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4 min read . Published August 17, 2022

Authored by Kellye Guinan. Written by personal and Business Finance contributor

Kellye Guinan is a freelance editor and writer with over five years of experience in personal finances. She also works full-time as a employee at her local library, helping the community gain access to information on financial literacy, among other topics.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing clear, well-researched data that break otherwise complicated topics into bite-sized pieces.

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If your lender does not have a penalty for prepayment, paying off your faster is a great way to save money. It will result in less interest — and , when you finish, you should have a few extra hundred dollars to spend each month. But getting there can be difficult. There are a few tactics you can use to pay your loan off quicker. However, even the best option however, it can make you in a much worse financial situation if you’re not aware of your strategy. 6 strategies to get rid of your car loan faster There’s no one path to paying back your vehicle loan ahead of schedule. In reality, it makes sense to vary your approach. When you’ve got an idea of what you want to do, you can make use of a couple of methods to pay off your vehicle loan quicker. 1. Refinancing with a new lender could be a simple way to pay off your loan quicker. If you opt for the shorter loan term, you may be able to maintain the same monthly payments given that you get a lower interest rate. Even if you do not make additional payments or increase your monthly payments to make them more frequent, you’ll be able to be able to pay off the car loan faster. 2. Pay biweekly, even though it might not seem like much but paying twice per month rather than one time will help you get closer to the finish line quicker. It will also help save on . The reason is that interest will take less time to accumulate before you can make a payment as well as because you will consistently lower the total loan balance. This helps you move towards an early payoff date without drastically increasing the amount that you contribute to your loan every month. 3. Round your payments up to the nearest hundred Similarly in rounding up your monthly payments, it can have a slight impact on the month-to-month basis, but it will make a huge difference over the long run. By rounding to the nearest 100, or at the very least, the closest whole number, you will gradually reduce the amount of principal on your car loan. Additionally, you’ll be ahead of your schedule, which will keep you ahead of the interest rate and ease you into a faster payment. 4. Opt out of unnecessary add-ons if you would like gap insurance, an extended warranty or a service contract to your loan make contact with your provider and cancel them. You’ll receive a prorated refund for the remaining amount, while also lowering your monthly payments. Instead of putting the cash back into your bank account, apply it to the loan. So, you’ll owe less in total and get the benefit of a lump-sum payment. 5. You can make a significant additional payment Bonuses, tax returns and other big lumps of money could go towards your vehicle loan. Any time you can reduce the amount of your principal by a couple of hundreds of dollars, it’s likely worth doing. Similar to rounding your monthly payments and making payments biweekly this will stop interest from adding up. As your loan balance decreases the more of your payments goes towards principal, leading to the early payment. 6. Each month you should pay your loan even when you’re ahead of your schedule however, you should still make payments on your loan each month. This will keep interest from rising and, in turn, more money goes towards principal and thereby reducing the amount of cost of interest. In addition, making regular payments even when they aren’t required will lead to paying the car loan in a timely manner. If you don’t want to pay off your car loan early Making the decision to pay off your vehicle loan earlier means you’ll have an extra couple hundred dollars in your bank each month. In some instances you may negatively impact your financial situation more than it helps and so not be the ideal option. Beware of paying your loan off early when there is a penalty for early payment. This is essentially a punishment for not paying your loan in full or paying the full amount of your loan early. It’s the lender’s effort to compensate with the amount of interest that you could have paid if you had stayed on schedule. If there’s a prior payment penalty, ensure it’s not more than you would otherwise be paying in interest. The loan uses precomputed interest . The interest you pay is front loaded each year so that the first month is accounted for a higher percentage than the last month. When you make payments on your loan in advance, you will not substantially reduce price of the auto loan. In this case it’s best to adhere to the loan schedule. If you don’t have a lot of debt. While it may seem counterintuitive the credit score you have is calculated on the kind of debt you have and the length of your accounts. Since automobile loans are long-term loans, making consistent payments for years will help maintain your credit score. One caveat: making payments to pay off your loan can reduce your credit utilization ratio which represents around 30 percent of your credit score. If you are in debt with other creditors and have a high percentage of your income to debt (DTI) eliminating one of them will improve your score. Ways to lower the cost of your car loan from refinancing your loan There are two options to reduce your monthly payments either defer them or ask for a loan modification. Deferment lets you skip the payment if you’re experiencing short-term financial hardship. Lenders may offer one to three months deferment in order to help you get through the. But deferment only moves the payments to the end of your loan and you’ll still have to pay them back eventually. Also, you’ll be accountable for interest and in the end, it is more expensive. The lenders may not be as willing to modify your loan however, it’s not going to hurt to ask. Like refinancing, you can alter the terms of your loan by either extending your term or lowering your interest rate. If you are able to negotiate an amendment to your loan and reduce your monthly payment without needing to sign a new loan with another lender. The next steps always be the best decision to make the payment on your vehicle loan early. If you’re subject to prepayment penalties or a potential hit to your credit score The savings won’t be worth the cost. If you’re looking to get out of the burden of car loans, getting rid of them is among the fastest ways to make room in your budget. Refinancing — or simply making extra payments — are the best ways to pay off your car loan quicker. Even if it’s only an extra few dollars per month, you’ll be able to lower your debt, and possibly take a few months off from your loan. Learn more

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Written by Personal and business finance Contributor

Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal finances. She is also a full-time librarian at the local library in which she helps the community access information about financial literacy, among other subjects.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to control their finances with precise, well-researched and informative facts that break down complex topics into manageable bites.

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