When it comes to borrowing money towards auto financing, roughly seven out of 10 people take this road. Which is understandable, considering car loans are one of the larger financial obligations you'll likely have alongside a home mortgage.
If you fall into that majority, that means you've likely been saddled with a fat loan that typically takes 60 or 72 months to pay off. For those that can't take any number crunching, that's five to six years of financial responsibility.
Paying off your car loan fast will save you more money, and improve your credit rating, over that half-decade of car loan enslavement. The cash saved on the loan's interest is particularly significant; most car loans are calculated by the simple interest method. Simple interest means that the interest is calculated based on the loan's outstanding balance. So naturally, the lower your balance is at month's end, the lower interest you'll have to pay, thereby saving you substantial funds.
There are some simple adaptations you can make in your auto financing plan to expedite your payments, freeing up finances for your other endeavours.
Bust out your car loan calculator!
Make Bi-Weekly Payments.
On the surface, it appears as if this is a lateral move. What's the difference between paying half of a full month's payment every two weeks?
Looking more closely at the math (you do have that car loan calculator out, right?), bi-weekly payments over the course of 52 weeks – one year – equates to 26 payments in that 12-month span. So that's 13 full payments over a year, as opposed to 12.
You'll be freed of your auto financing sentence faster, while saving more and more money in the long run (remember, simple interest calculations!). Many people are paid every two weeks as well, making it an easy and routine transition to implement a bi-weekly plan.
Don't be Tempted by the Skip Payment Option.
This tip speaks for itself. Some lenders will provide the option to skip a payment once, sometimes twice, per year.
Resist the temptation. While the idea of an extra $500 to play with for one month sounds appealing, you'll eventually end up forking over more money thanks to the simple interest method. Plus, you won't have peace of mind with that loan obligation hovering over your head like a storm cloud.
Pay off your car loan ASAP, and then you'll have those funds (plus extra, from all those interest savings) freed up to enjoy.
Round Up Your Payments.
All of these tips are small hits towards your auto financing, chiselling away at your loan payments incrementally. But it'll show its worth in the end product.
Rounding up each of your payments is another small chip in reducing that car loan to zero.
Take this scenario, for example: you purchase a $20,000 car with a 4.25% interest rate over 60 months. The monthly payments off these figures equates to roughly $371 to be paid. Rounding up that payment to a cool $400 will reduce your auto financing obligation by six months.
That's freedom a half-year early, and big time savings on simple interest, too.
Make an Additional Payment Each Year.
If your financial situation can handle it, making one additional payment per year is another great way to free you from your auto financing plan. You can opt for this method rather than the bi-weekly payment option, if you prefer to rip off that Band-Aid in one go; making one extra, full payment will equate to similar savings.
It takes discipline, but using tax returns, work bonuses, or whatever other unexpected windfall of money that's fallen into your lap can be put towards that extra annual payment.
You can take advantage of additional discounts when you opt for auto payments or paperless statements in some instances. The lender saves money by not having to consistently send you paper bills every month, which will translate to you. And with auto payments, there's no fear of missing any payments and incurring late fees.
Some people have shaved an extra 0.25% off their interest rate after switching to online payments over paperless statements.
The underlying goal to all these tricks in reducing your auto financing timeframe is to save money on interest, and decrease the overall time you're shackled to car loans. Once you're relieved of the obligation, you'll have the liberty to use that car loan allotment for home improvements, entertainment, or paying off other debts. Additionally, you'll feel a lot less stressed and at peace of mind once you get that car loan off the books.
Looking to get those car loans paid off ASAP? Magical Credit can help with bad credit personal loans, ranging from $2,000 to $10,000, which can cover a significant chunk of your auto financing plan.
See if you qualify by filling out our application, or give us a call today!