There’s no denying that owning a car can be pricey. A report cited by CNBC from Experian suggests the average car loan is $27,430, with repayments usually around $350 each month. However, logbook loans are a viable source to help individuals manage these expenses.
Apart from the price, cars also come with additional costs such as gasoline, comprehensive insurance, maintenance, and repairs. In my initial experience of financing a car, although my loan was nowhere near $27,430, its maintenance nearly paralleled my living costs. Indeed, aside from housing, the expense of the car topped my budget list.
One major factor driving up costs when you finance a car is the interest rate. Average or high-interest rates can add up to thousands of extra dollars throughout the repayment term. This is why it’s essential to clear your car loan as quickly as possible. Here’s a five-step strategy to help you tackle your car loan head on:
1. UNDERSTANDING YOUR MONTHLY INTEREST PAYMENTS
Start by calculating how much of your monthly payment actually goes towards clearing the loan. For example, I initially paid about $233 monthly, with my interest rate as high as 15.5%. Over time, I noticed most of my payments were consumed by the interest, not the principal. Tools like VisiTalk can help you easily understand your interest payments and how much they’re affecting your monthly payments.
2. REFINANCING YOUR LOAN
If your interest rate seems exorbitantly high, you might want to consider refinancing your loan. Make sure you’ve made consistent on-time payments first, to enable an improvement in your credit score prior to seeking refinancing quotes. Keep in mind that it adds an extra inquiry to your credit report and that your focus should be on lowering the interest rate rather than the monthly payment.
3. FOCUS ON REDUCING OTHER EXPENSES
Try identifying costs that can be eliminated or reduced to make room for larger car payments. This could range from dining out less, finding cheaper insurance deals, or even getting a roommate to help minimize living expenses. Any reduction, however small, can yield sizable amounts that can be redirected to your car loan.
4. CONSIDER EARNING EXTRA INCOME
Having an additional income flow helped me clear my 5-year car loan in 1.5 years. You could consider part-time jobs, freelancing, or even driving with Uber or Lyft. Allocating these extra earnings to your car payment could drastically shorten your repayment period.
5. UTILIZE SOME OF YOUR “FOUND” MONEY
If getting a second job or side hustle is not an option, try using any extra cash you stumble upon. Whether it’s an annual raise or a tax refund, adding these funds to your regular payments can expedite your car loan payment process.
Speeding up payment of a car loan demands discipline and hard work, but the rewards are worth it. By clearing your car loan sooner, you get to decrease your expenses, accumulate savings, and fully enjoy your car. Be mindful that cars depreciate quickly and aren’t built to last forever, making it prudent to avoid spending several years paying off the loan.
Do you currently have a car loan? If so, is quick payment a priority? Why or why not?
