For most, a reliable car is a necessity. If you are like most people, you don't have the cash lying around to pay for a vehicle outright. Financing allows you the opportunity to make monthly payments for a specified loan term. Along with paying the car's purchase price, you will also be charged interest on the loan. The interest is automatically factored into the loan and the payment amount. You are required to make a minimum monthly payment, but paying more each month might save you some money.
Ensure your payments arrive on time. Making your payments online or over the phone eliminates the risk of your check getting lost in the mail. Not only are late fees costly, but late payments are damaging to your credit score.
Read the prepayment section of your loan agreement. Some lenders charge a penalty for borrowers who pay off loans early. At the time of publication, 14 states prohibit lenders from charging prepayment penalties.
Round up the payment. Adding a few extra dollars to your payment amount each month can effortlessly shrink the balanced owed. For example, if your payment is $370, pay $400.
Discuss biweekly payment options with your lender. When you pay half the monthly amount every two weeks, you make 26 payments in a year, which is equal to 13 full payments.
Add an extra payment. If the lender doesn't agree to a bi-weekly payment schedule or it doesn't fit into your budget, consider applying extra money towards a 13th payment when possible. Consider using money from an income tax refund, bonus, or gifts to make the payment.
Avoid skipping payments. Lenders commonly allow borrowers to skip a payment once or even twice a year. This can be enticing when money is tight, but costly in the long run. Skipping a payment extends the loan and adds additional interest.
Take money from your savings to pay the debt if you can afford it. Don't deplete your savings account to pay off the loan. If the auto loan interest rate you are paying is higher than the amount you are earning on your savings account, you can make more money by eliminating the interest and paying back yourself instead of the lender.
Refinance if your credit score has improved since obtaining the loan. Your interest rate is typically a reflection of your credit score. You may qualify for a lower interest rate. When you refinance, the current loan is paid and a new loan is opened. Applying extra cash toward the down payment when you refinance will help lower your payment.
- How Does Interest on a Car Loan Work?
- Does Making a Large Loan Payment Decrease the Finance Charges?
- How to Refinance the Principal of a Loan
- How to Combine Car Loans
- How Does a Simple Interest Car Loan Work?
- Amortization of a Mortgage
- How to Reduce the Principal on a Mortgage
- How to Compare Mortgage Terms