Purchasing your car through loans can sometimes be a pain, especially if you don’t have a concrete plan. Unfortunately, this can lead to bigger problems that you might not be able to resolve properly. Always have these considerations in mind before and after you purchase your car. These can be integrated to your long-term financial goals to help you pay off your car loans easier.
Try Checking For Early Payment Penalties
Before doing anything else, it’s best to check whether or not you’re eligible for early payment. Sometimes, there are penalties for paying your car loan earlier than expected, so you should clear this up with your lender as early as possible before even signing any contract.
- Try to check if there are financial institutions that can allow you to get yourself early payment for free, or for a fee. If you can, try to get loans from institutions that offer less or no prepayment fees, as dealerships tend to charge them.
Try Setting Aside Savings Every Year
The next suggestions will revolve around any extra savings you can get from extra work or pay. Aside from having the best savings accounts, this suggestion will try to make sure you are able to do the other options below.
- Try your best to give a form of extra payment annually during the entirety of your term. These additional payments can actually help a lot for your payment. These tend to not only cut loan durations, but lessen interest as well.
- This is especially the case if you have bonuses for Christmas or for your work incentive. Try to make sure all your extra money is put in your car loan, just so you can pay for it faster. If you want, you can even try explaining your case to your employer and ask for a raise, or to get extra work on the side for additional payment.
- If you don’t want to give part of your savings, this is okay. You can instead try setting up an emergency fund for any sudden expenses you might have to do through the course of the repayment period.
- You can also try to get money from different sources for extra savings. Try to make a living out of your hobby, or find freelance work on the side.
- You may also try to put up an online sale or a garage sale to sell the stuff you don’t even use for extra income. Always make sure these are things you don’t need anymore, however. If you’re actually a spender or you tend to impulse buy, this can help save space and save more money on your end.
- You can also get to save money if you remove useless expenses for you. If you have a mobile internet or Wi-Fi plan, you can try cancelling out on those and go prepaid. You can also remove your cable TV subscription for a while. You may even consider taking time off using subscription-based services. You can simply just watch some stuff online instead.
- This is of course provided you have extra time on hand to be able to do these. After all, extra income will always go a long way, right?
Try Doing Bi-Monthly Payments
Auto loans tend to be tricky because even prepayment tends to have penalties. This means your fixed payment date will most likely be the date you will definitely have to pay. However, if you have a good credit and if your lender is kind enough, you may be able to make a case about doing half-payments every two weeks instead.
- Some users might think this is impractical because at the end of the day, you can only save very little interest. For instance, for a 60-month loan of $10,000, you can potentially save around $35.
- However! Thing is, with the same amount but with bi-monthly payments, you’ll actually only have to pay your dues for 54 months rather than 60. That’s a lot of months for should-be payments that you could save for other things in your life as well.
Try Rounding Up
Car and auto loans tend to have specific requirements when payment is the topic, especially on price. Sometimes, lenders tend to be strict with the way you make your payments. After all, as we’ve mentioned above, sometimes you only get very few options for the ways you want to pay your loan.
- If you’re free to negotiate, however, then you can do a lot more than just making bi-monthly payments. However, you can also try to instead round up your payments to the nearest zero value that you can afford. This gets a slow start, but you could pay for your loan potentially faster with this.
- For instance, a $10,000 loan with 10-percent interest with a 60-month payment will more or less give you $212.47 monthly dues. This means, you’ll get to repay the loan in 60 months with $2,748.23 in interest. However, if you round up to, say, $250 a month, not only will you get repay the loan in just 47 months, you’ll only pay $2,214.69 for interest, but you will also save $533.54!
Try Making An Extra Payment Annually
This is similar to the rounding up option above, only you’d do it in one big drop. If you are able to save a bit of money from extra salary or bonuses, you can actually make a big payment.
- Let’s go with the above example again: a $10,000 loan for 60 months with 10-percent interest. If you go for an extra $500 payment annually, you’ll get to pay for the loan in just 49 months. You will only pay $2,279.35 for your interest (versus $2,748.23) and you will save $468.88.
If you do this plan annually, you’ll get to save in interest, right? The earlier you make the big payments annually, the sooner you’ll get to finish paying for your loans.
Try Refinancing
Sometimes, a refinanced car loan can be the best way for you to pay off faster. Try to check if you can negotiate for a new monthly payment and a pay-off date with your loan. However, only do this path if you think it will get you a lower payment per month. If you think this is just making your life difficult, then don’t opt for refinancing.
Conclusion
Car payments can sometimes be a pain especially if you don’t have a good plan of action in mind. However, always remember that there are always good ways to add your car loans into your current financial plans, or to adjust them accordingly.
By the time you take a loan for your first car, always remember to be prepared of the financial burden it will impose on you for a while.
What do you think are other ways to pay your car loans more efficiently?
