Ben Todd | Apr 16, 2017 | 3
Smarter Auto Financing: How to Pay Your Car Loan Off Fast
You can pay off your car loan more quickly in most cases. This article explores a few ways you may pay off your loan more quickly. It explains how you may get a better finance deal, how you may pay your loans more quickly, and how you may refinance for a better deal.
Find A Deal Where You May Pay It Off Early
This tip is king of the hill
Top of the heap
A number one
Without this tip, the rest of this article falls apart. After all, what is the point in financing a car and learning how to pay it off early if you cannot pay it off early and pay it off fast?
What about refinancing? Won’t that allow me to pay it off early? Not if the original loan/finance deal you got says that you cannot. It is quite legal for your finance deal to say that you have to pay every penny of your loan and every penny of the interest. You cannot refinance with another company and use that company’s lower rate if you (or the finance company) have to pay every penny of interest owed over the full term of the previous loan.
In other words, it is possible for your finance deal to forbid you from paying off your loan early. If you do pay off early, they may still charge you the interest that you would have paid if you had seen the loan through all the way. In addition, it is legal for the finance contract to say that you also have to pay penalty fees if you pull out of the loan early.
Check Your FICO Score And Your Credit History
Your FICO credit score may be your best friend or your worst enemy. It tells the creditors how trustworthy you are when it comes to handling credit. They decide your trustworthiness based on historic and current reasons.
The current reasons include your average income over the last few months, how long you have been in your home, how often you move, how often you have switched jobs, and how long you have had the same income and/or same job.
The historic elements they use to judge you are found on your credit history. They include things such as missed payments, how much debt you have, how much of your debt potential you are using (i.e. are your cards maxed), how often you pay your debts, how much you pay in debt compared to how much you earn, and how often you have applied for credit recently.
Though I say it a few times in this article, if your credit score is rather low, then you should work on it a few months and improve it before going back to creditors. The image below shows you just how screwed over you will be if you have a poor credit rating.
It Is Worth Building Your Credit Rating
Taking the information in the image above, let’s take a look at a $10,000 loan with an APR of 17.9% for a person with a credit rating between 550-620 and a person with a credit rating of 11% because they have a credit rating between 620-680. Both loans are paid over 10 years, and you can see what a difference it makes if you work on your credit score.
Total monthly payment: $359
Total charge: $23,090
Total repayment: £43,090
Total monthly payment: $275
Total charge: $13,060
Total repayment: £33,060
Compare More Than Ten Deals
When you go online, on comparison sites, and on loan directories, it is imperative that you do not take their word for it. The company with the biggest marketing budget will “appear” to be the cheapest on the comparison websites and it will “appear” to be the best on “impartial” review websites.
These days, you are able to do soft searches where a company may find out your credit score and so forth without it showing up on your credit history. Visit different finance company websites and bank websites and run soft searches. Run at least ten searches in order to get a clear view of where you are at. Do not trust comparison sites and review websites exclusively, you must do your own broad and in-depth research to get the best finance and re-finance deals.
Negotiate Like You Have No Shame
Don’t be afraid of calling finance companies or sending messages with screenshots of the offers you received from one company and asking them to beat it. If they do, then take their quote to all their competitors and ask them to beat it. Some people feel like they are being cheeky if they ruthlessly ask to pay less, but don’t forget that you are paying them with your hard-earned cash. How many extra hours are you willing to spend at work because you didn’t want to appear too forceful or cheeky?
Can You Get A Better APR Rate?
Whether you are financing or refinancing, can you get a better APR rate. Is there something you can do to lower it, such as put up some sort of collateral, get a co-signer, or put down a large down payment?
Wait Six Months And Try Again
If you have don’t your research and things are still looking nasty, then build up your credit rating (FICO score) and try again. If you have more than three credit enquiries in a six-month period, then it is a sign that your finances are a mess and it influences your creditability and your credit rating.
Set Up An Automatic Bill Pay Instruction For Your Pay Day
To avoid missing installments, you must pay your debt installment on the same day you are paid. Not only will it help you avoid missing payments, it will also create a scenario where you do not miss the money. If you miss payments, then your car loan will take longer to pay off.
You should over-pay if you are able. If you have worked a little overtime or you have a little money left over from the month, then pop it into your car loan. Remember that every time you overpay, you are saving money and getting yourself out of debt quicker.
Would A Personal Loan Suit You Better?
You are probably looking for car finance companies in order to get your car loan, but some of them offer very nasty deals with horrible repayment options. Have you considered a personal loan? You are allowed to get a personal loan and spend it on a car if you wish, and it may be your best option. If you are looking to get a second hand car or one that has a lot of mileage, then a personal loan may be your only option.
Test the online tools you find on finance companies to see how your deal and your rate are affected if you have a larger deposit amount. You may get a personal loan for a smaller amount and use that amount as your down payment on the car. You may then gain a slightly better interest rate or finance deal on the car. You will have to suffer through paying the personal loan and the car payments on a monthly basis for a while, but once you have paid off your personal loan, you will only have your car payments left, and that shouldn’t take you as long if you are able to afford personal loan payments (since you no longer have the personal loan, you may put the money on your car loan instead).
Take Note Of The Total Amount That Needs To Be Repaid
There are three elements to consider. There is your monthly payment, your interest rate, and how long you will have the loan for. You may have a small interest rate and a small monthly payment, but the amount you pay back may be massive if the loan goes on for years.
If a low monthly payment is your aim, then you may have to accept a far longer term for your loan. A few years may turn into many years if you want to pay less per month. The longer that it takes to repay your loan, then the more it is going to cost you. Even with a low ARP or interest rate, way will end up paying a lot of money.
Why Do Some People Opt For A Car Loan Over A Longer Period?
One reason is because they do not want to have to pay a lot of money out per month. They may prefer to take their car payments at a slow and steady pace. There is a chance that the person taking out the car loan is unable to make larger payments and so has opted take the easy road rather than risk higher repayment amounts that he or she may not be able to afford.
Other people may take a longer repayment option because they plan to overpay. They take the tip mentioned earlier and they take out a car loan that allows you to pay back early. The amount they pay out per month is only small amount just in case there is one month when his or her cannot pay. Other months, the person taking out the loan will overpay.
Opting for a smaller monthly payment and then overpaying every month is a safe method and a reasonably good way of paying off you loan quickly so long as you abide by two rules. The first is that you get a loan that allows you to repay early without a penalty. The second is that you are given an APR rate so that the amount of interest you pay goes down over time.
Short Tips And Ideas For Paying Off Your Car Loan
Since the Internet is riddled with other people’s ideas on how to pay off car loans and car financing sooner, here is a quick bullet point list of the most commonly quoted ideas.
- Check your interest rate and see if you can get a lower interest rate by paying a bigger deposit by using a credit card to pay your down payment deposit.
- Wait at least a year before trying to refinance because the refinance companies may say no if you do it too soon.
- Skipping payments is a bad idea, even if the loan company says that skipping payments is something you can do.
- Do not refinance if you have to pay a big fee. That is because the fee will eat into your interest-rate savings.
- Make at least one large payment during the term of your loan to save on interest because of it.
- Never pay exactly what the company says, always round up because that link bit will make a difference in the long run.
- Try to chip some money into your loan account whenever you can. It will help lower the amount of debt you are in without hurting your finances too much.
- Pay half your monthly payments every two weeks because there are 52 weeks per year, which means you make 13 full payments per year instead of 12.
Conclusion – Try To Arrange Financing Before You Go To The Dealer
This article has taught you how to pay off your car loan a little faster, and you may have noticed that many of the points include what you should do prior to getting your car loan. With that in mind, please remember that they also apply when refinance too. You may be half way through your loan and think the end will never arrive, but the tips described for people buying their first car loan will still apply for people looking to refinance.
One of the few tips that will not apply is this one and that is that you should arrange your car financing before you go to the dealer. It helps avoid scams and pressure selling. You will not be scammed if you arrange finance beforehand. You will not experience a packing scam where you have to take GAP insurance and extended warranty, and you will not experience the spot delivery scam where you are led to believe your finance deal fell through. The most common scam that dealers pull is a bad credit score scam where they convince you that you cannot get financing, but they then use their magic to produce your last option…a loan with a huge interest rate and horrible repayment terms. Get your financing before you arrive, so that you may flip the dealer’s desk if he/she tries to pull a scam on you.