No one likes being in debt, and car loans can be especially daunting. The good news is, there are a few proven ways to pay off your car loan more quickly. Read on to find out what they are!
1. Refinance your loan if rates have gone down since you originally borrowed
If interest rates have dropped since you originally took out your car loan, refinancing could be a great way to save money and get out of debt more quickly.
When you refinance your car loan, you essentially take out a new loan with a lower interest rate to pay off your existing loan. This can save you money in the long run by lowering your monthly payments and reducing the amount of interest you’ll pay over the life of the loan.
In addition, if you have good credit, you may be able to qualify for a lower interest rate and save even more money. If you’re considering refinancing your car loan, be sure to compare rates from multiple lenders to find the best deal.
You’ll also need to factor in any fees associated with refinancing, such as closing costs. But if done right, refinancing can be a great way to save money on your car loan.
2. Make biweekly payments instead of monthly ones
If you’re used to making monthly car loan payments, switching to biweekly payments can help you get out of debt faster. By dividing your monthly payment in half and making biweekly payments instead, you’ll end up making one extra payment per year.
That may not sound like much, but over the life of a typical five-year car loan, it can add up to several hundred dollars in interest savings. Not to mention, you’ll be debt-free that much sooner!
3. Round up your payments
In addition to making biweekly payments instead of monthly ones, another great way to get out of debt more quickly is to round up your payments. For example, if your monthly payment is $300, try rounding it up to $325 or $350 instead.
By doing this, you’ll make an extra car payment or two over the course of a year without feeling too much of a pinch in your budget. Every little bit helps when you’re trying to pay off debt!
4. Make extra principal payments when you can afford it
If you come into some extra money—say, from a tax refund or bonus at work—consider using it to make an extra principal payment on your car loan. Doing so will reduce the amount of interest you’ll pay over the life of the loan and help you become debt-free that much sooner. Just be sure to check with your lender first to make sure there’s no prepayment penalty for doing so.
5. Trade in your car for a less expensive one
If you’re really struggling to make ends meet each month and find yourself falling behind on your car payments, trading in your vehicle for a less expensive one may be the best solution.
With a more affordable car comes a more affordable monthly payment—making it that much easier for you to stay current on your loan and become debt-free before too long. Not to mention, trading in your car can also help you avoid defaulting on your loan entirely—which would do major damage to your credit score and finances down the road.
6. Don’t forget about saving for a rainy day!
Never neglect an emergency fund. Now is the time to start beefing up your emergency fund so that you’re prepared for whatever life throws your way down the road—car repairs, job loss, unexpected medical bills, etc.
This may seem counterintuitive to try to pay off debt, but by having an emergency fund in place, you will be able to prevent yourself from going further into debt should an unexpected expense arise. The last thing you want is to have to take out another line of credit because you put all your extra funds toward your auto payoff.
Having an emergency fund will give you peace of mind knowing that you’re prepared for whatever comes your way—and it will help keep you from falling back into debt if/when tough times hit.
7. Use windfalls wisely
When unexpected money comes your way—a tax refund or bonus at work, for example—don’t make the mistake of immediately blowing it all on unnecessary purchases or luxury items.
Instead, consider using that money to pay down your auto loan or other debts (like credit card balances) or sock it away into savings so that you’re prepared for whatever comes your way down the road.
Paying off any type of debt can feel like an uphill battle at times—but it’s worth it when all is said and done! If you’ve got a car loan that’s weighing you down, consider implementing some (or all!) of the strategies listed above.
You may not become debt-free overnight, but by following these proven tips, paying off your car loan will become that much easier. And once it’s paid off? You’ll be one step closer to financial freedom!
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