Did you know that Americans collectively owe more than $1.2 trillion in auto debt? With an average loan of $32,480, many Americans pay over $500 each month for a new car. But perhaps the most unsettling thing about automobile debt in America is the average term for an auto loan: sixty-nine months.
If you are in the market for a new car but are not excited about spending the next half-decade paying it off, check out these tips for paying off your car loan early.
Know how much the interest is and pay it each month
To get ahead, you need to keep rapidly-accruing interest from increasing your loan balance. Simply making the minimum monthly payment is not enough to shorten the life of your loan. Calculate how much interest is accrued each month and add that amount to your monthly payment.
For example: If your minimum monthly payment is $550 and your loan accrues forty dollars in interest each month, you should, ideally, strive to pay at least $590 toward your loan to keep the balance from growing and allow you to get ahead.
Pay a little extra by rounding up to an even number
This is an easy way to pay extra toward your loan, without really thinking much about it (not to mention, round numbers are always nice for budgeting). So, you might pay $430 instead of your monthly payment of $425 or you might round all the way up to $500. Regardless of how much you can afford to round up, every dollar brings you one step closer to paying off that auto loan.
Evaluate your budget to free up some cash
Do you really need all the movie channels with your cable subscription? Or, perhaps you can switch from cable to an online streaming service and dramatically reduce your bill. Whatever you can do to make room in your budget to pay more on your car loan, do it. Your budget is a good place to find extra money to pay down this debt.
Extra money means an extra payment toward paying off your car
If an increased payment is not in the budget, consider increasing your income. Working overtime or getting a second job can give you the extra money needed to pay off that loan quickly.
Keep in mind any unexpected money like tax refunds, bonuses, or gifts. This money is not typically something you budget. Use it for extra payments toward your auto loan whenever possible.
Make payments twice a month instead of just on the payment due date
This is a great option for borrowers who get paid biweekly. Making two monthly payments toward your loan instead of one will result in about two extra payments per year since you will get paid three times instead of two in those long months.
Remember, anything over the minimum payment goes toward the principal – so while it may seem small and inconsequential, every little bit helps.
