For many of us, car payments are the largest monthly expense after housing. And while making the minimum payment each month will eventually get the job done, that approach also means paying a lot more in interest.
The simple answer to paying off an auto loan (or any loan) faster is to make larger payments, but, of course, that’s not always feasible. Still, in many cases, a few small adjustments can reduce the total interest you pay and help you become debt-free sooner.
1. Make Small Extra Payments When You Can
The first tip is simple. Whenever you find a little extra room in your budget, consider making an additional payment toward your principal balance (aka, the amount you still owe on the loan itself, excluding future interest charges).
We're not talking about doubling your payment, just an extra $20 to $50 after a low-spending month. Small, occasional payments can add up over time, helping you pay down your loan faster and reduce the amount of interest you pay.
Just make sure your lender applies the extra amount toward the principal rather than future scheduled payments.
2. Round Up Your Monthly Payment
If making small extra payments feels manageable, consider making it a habit by rounding up your regular payment instead. Turn a $472 payment into $500, or turn a $385 payment into $400.
If you play it right, you’ll barely notice the difference in your monthly budget, but those extra dollars can help reduce your loan balance more quickly.
3. Make Biweekly Payments
Some lenders allow borrowers to split their monthly payment into two half-payments every two weeks.
While that may not sound much different from monthly payments, there are 26 two-week periods in the year. That means you'll make the equivalent of 13 monthly payments instead of 12-essentially one extra payment each year. Over time, that additional payment can shorten your loan term and reduce interest costs.
Before switching to a biweekly payment strategy, confirm that your lender accepts biweekly payments and applies them as they are received. At Maps, members can set up automatic biweekly payments for eligible auto loans. Not all lenders offer formal biweekly payment programs, however, and some may require borrowers to make the payments manually.
And because payment processing varies by lender, make sure your payment schedule keeps your account current and avoids any late-payment issues.
4. Put Windfalls Toward Your Loan
Unexpected income is perhaps one of the easiest ways to make major progress on long-term financial goals. Although tax refunds, work bonuses, rebates, or cash gifts may be tempting to spend, they can also be powerful tools for paying down debt.
You don’t have to dedicate the entire amount, but directing even a small portion of the extra funds toward your auto loan can help reduce the loan balance and shorten the repayment timeline.
5. Consider Refinancing
A lot can change over the life of an auto loan. If interest rates have improved, your credit score has increased, or your financial situation has changed since you took out your auto loan, refinancing may be worth a closer look.
Depending on the circumstances, refinancing could lower your interest rate or reduce your monthly payment. It may also allow you to choose a shorter loan term, helping you pay it off faster.
Refinancing can also be a good opportunity to shop around and compare lenders. In many cases, refinancing involves replacing your current loan with a new one, either through your existing lender or a different financial institution. If another lender offers a lower rate or better loan terms, switching could save money over the life of the loan.
Just be careful not to focus only on the monthly payment. Extending the loan term may reduce your payment but increase the total interest you pay over time.
6. Avoid Skipping Payments
Some lenders offer payment deferrals or skip-a-payment programs during times of financial hardship. And, while these programs can provide temporary relief when needed, they generally extend the life of the loan and increase the amount of interest paid.
So, if your goal is to pay off your vehicle sooner, making consistent payments is usually the better long-term strategy.
Should You Pay Off Your Auto Loan Early?
In many cases, paying off an auto loan early can save you money and free up room in your monthly budget, but it's not always the right move. The best strategy balances debt repayment with your overall financial health.
So, before aggressively paying down your auto loan, take a step back and look at your overall financial picture. If you're carrying high-interest credit card debt, lack an emergency fund, aren't contributing to retirement savings, or have other important financial goals competing for your attention, those priorities may deserve consideration first.
It is also worth checking with your lender to ensure your loan does not include prepayment penalties. While most auto loans do not, it’s always worth confirming.
Not-So-Small Changes
Paying off your auto loan faster doesn't necessarily require a larger income or a major lifestyle change. Consistent actions-no matter how small-make a difference over time. Rounding up a payment, applying part of a tax refund, or sending an occasional extra payment when your budget allows can help get you closer to your goal.
More than anything, consistency and follow-through matter when trying to move the needle. So, consider setting up automatic payments and increasing your payment amount whenever you receive a raise or pay off another debt.
Also, review your loan balance and options periodically to identify opportunities to save money or pay down your debt more quickly. Small adjustments like these can help you build momentum without dramatically changing your budget.