Car loans are some of the most common personal debts owed by modern drivers. Paying off your car loan early can put you on the path to financial independence by reducing the amount of loan interest you pay over time. Are you wondering how long to pay off car loans so that you don’t end up upside down on your loan?
When it comes to how long it takes to pay off a car loan, the most common loan term is currently 72 months, followed by 84-month terms. So if you’re one of the 70% of car owners with a term of 60 months or longer, you’re far from alone. The good news is, paying off a car faster than its stated term is entirely possible when paired with the right motivation, mindset, and money management skills.
Why Is It Important To Pay Off Car Debt Fast?
According to credit reporting agency Experian, monthly payments for vehicles range anywhere from $550 for new cars or $393 for used cars. Monthly lease payments fall into the middle of both figures, amounting to $452 on average. These numbers are made much higher when paired with low credit scores, poor credit history, and missed payments.
With thousands of dollars paid on principal and interest every year, many vehicle owners are driven to pay down their debts and become financially independent. However, the large amounts of money associated with an auto loan and often daunting business jargon can cause many individuals to assume the worst about their financial situation.
As a significant portion of the average American’s monthly expenditure, car debts are often large obstacles on the path towards pure financial freedom. The faster car debts are paid off, the faster personal wealth can be grown and managed. Implementing an actionable plan for paying down personal car debt is an excellent method of removing excess financial burdens that affect your lifestyle goals.
5 Techniques For How To Pay Off Your Car Faster
No matter the size of your monthly car payment, there are five unique ways that vehicle owners can pay down their principles in a short frame of time. Remember that paying down the balance of your auto loan is never a race, but a marathon that requires dedication and determination to complete. Mapping out your projected time frame creates a framework that functions both as a nemesis and an accountability partner.
1. Reduce Your Term Length
A loan term is the amount of time a borrower is allowed to pay back the funds provided to them from the bank. Terms are typically measured in months and can range anywhere from 24 to 84 months in length. The longer the term length, the smaller the monthly payments will be.
However, smaller monthly loan payments do not equate with paying off your auto loan faster. Taking as long as seven years to pay off in full, car loans can last for a significant portion of your primary working career. Choose to reduce your term length to a number that best reflects your personal financial goals, taking care to calculate your monthly payments using a financial calculator.
As an additional bonus, shorter-term lengths often are associated with lower interest rates. In the end, shorter-term lengths are an excellent way to reduce total payments and conserve your financial resources.
2. Try Out A New Budget
Reallocating your current income for the financial goals that matter most is paramount to paying off a car loan faster.
If you don’t already have a budget, sit down and make a list of all income estimated for the month. Create categories of expenses that apply to your lifestyle, including your auto loan. How many categories could be reduced for a certain time while payments are being made?
Budgets can be created by writing with a paper and pencil, utilizing a spreadsheet application, or finding an online alternative. Budgeting apps are available for virtually all devices, and most of them are free to use. Be sure to pick a method that supports your lifestyle best.
3. Look For A Side Gig
Raising your income is the most efficient method of amassing wealth. The more money you can earn, the more you can put towards paying off your car loan faster.
Find ways to raise your monthly income using resources available to you. Ideas for boosting monthly income may involve:
- Finding a second job
- Working weekends or overtime at your primary job
- Having a garage sale
- Crafting and selling items
Be sure to choose an option that is both sustainable and enjoyable, helping to reduce fatigue and burnout.
4. Make Extra Payments
Ultimately, the amount due on your car loan will not be paid off faster unless you make additional monthly payments on the principal.
Most people choose to make extra payments on their car loans in one of three ways:
- Paying Twice A Month: Making two payments that are more than your monthly bill will not only pay off the principal faster but will reduce accrued interest.
- Paying The Principal: Make payments that directly impact the overall cost of the vehicle instead of the interest rate.
- Rounding Up: Make an extra monthly payment on the amount of your current auto loan rounded up. For example, if you pay $515 per month, round up to $600. If you pay $375, pay $400.
See how much making extra payments can affect your loan.
Refinancing your current auto loan is one of the fastest methods of paying off a high-interest car.
As credit history lengthens and credit scores rise, vehicle owners may find they are eligible for more agreeable, lower interest rates.
However, there are both pros and cons to refinancing a vehicle. Owners should be cautious while weighing their choices.
To see if your loan is eligible for refinancing, check with an auto loan officer about your options.
Pay Off Your Car Faster With A Refinanced Loan
If high-interest rates are keeping you from quickly paying down your vehicle principal, the best solution may be to refinance your auto loan with Greater Texas Credit Union.
Offering a host of unique benefits, low-interest rates, and no prepayment penalties, our custom auto loans are a quick and efficient method of paying down existing car debt all within a time frame that suits your lifestyle best.
Interested in seeing what Greater Texas Credit Union can do for your car loan needs?