Paying off a new car loan early can potentially save you hundreds, even thousands, of dollars in interest. Pay off the car loan in one lump sum if you suddenly find yourself with enough cash to do so, or strategically pay it off early over time. Read your loan contract carefully, as some contracts include a penalty for paying off the loan early to help protect the financial institution from losing income it anticipates making over the life of your auto loan.
Look at your last loan statement for the payoff amount. If it isn't listed, call the financial institution that holds your note.
Write down the payoff amount, interest rate and monthly obligations. Plug this information into a loan payoff calculator, such as the one at BankRate.com or MortgageLoan.com, to see how much you can save by paying the car off in a lump sum, making biweekly payments or increasing your monthly payments.
Weigh your options. If you have the cash to pay off the loan in full and won't incur any ridiculous early payoff penalties, write a check or make an electronic payment to satisfy the debt in full.
If you don't have the means to pay your car off in full right now, plan how best to pay down the debt quickly. This may include making biweekly payments. By splitting your 12 full monthly payments into 26 half payments (one every two weeks), you’ll be making 13 full payments a year. Because you will be making one extra car payment per year, your principal balance will go down faster. Reducing the principal will reduce the interest you owe and shorten the length of the loan. Alternatively, add any extra money you receive — such as cash gifts, tax refunds or bonus checks — to your regular payments, and specify that the extra funds be applied directly to your principal balance. For example, if your car payment is $345, send in $400 or $450 each month if you're able. It may seem like it doesn't make much of a difference after one or two months, but it can shave hundreds of dollars and multiple months off the life of your loan.
- Set up payments to be automatically deducted from your bank account, particularly if you plan to pay biweekly or have a little extra you can commit to each month. Setting it up to be automatic might stifle the urge to pay the minimum or skip an extra biweekly payment during the year.
Janece Bass is a freelance writer specializing in weddings, family, health, parenting, relationships, dating, decorating, travel, music and sports. She has been writing for more than 15 years and has numerous published pieces on various websites and blogs. Bass has also ghostwritten various fiction-based novels.