Your car loan is built with a principal part, which is the money that you’re paying for your car, and interest. This can become a very high sum the longer it takes you to pay off your loan.
Most of the car’s costs are tangible because you’re constantly aware of them. This means that you know how much you’re paying for gas each time you stop at a gas station, and how much you´re paying for each necessary service to keep your car up and running.
However, the interest on your car loan isn’t as visible and it can easily slip your mind. This is why people don’t usually realize how much money they’re giving the banks, as the interest isn’t a part of the actual payment of a car. Luckily, you can save a lot of money in the long run if you pay off your loan early.
Make sure to check with your lender if they agree to accept extra payments. Some may charge you extra fees, so you should always calculate which option would help you save the most money. Remember that you’re trying to shorten the time you take to pay off the loan to pay less interest overall, so it wouldn’t make sense to pay it off early but spend what you would’ve saved on fees.
A simple way to do so is to round your monthly payments up to the nearest $50. This’ll allow you to pay a little extra money each month, which will then shorten your overall term. Since it isn’t a large amount, it can be easier on your wallet to make these little extra payments.
Another option is to make one big extra payment each year. You can save a little money each month or choose to destine an extra income in order to raise a large sum. If you have the chance to make more of these lump payments throughout the year, the better.
There’s also the possibility to refinance your loan to replace your current loan with a new one. You can negotiate lower interest rates and a shorter term. Hopefully, this would help you consolidate your debt. Keep in mind that this can cost you up to 6% of the loan’s principal and can carry other fees, so weigh all pros and cons before deciding on an option.