The average cost of a new car monthly payment is $554, while it drops to $391 for used cars. It’s quite the sum to manage for the long term when there might be more feasible alternatives. Here, we aim to provide guidance on settling your car loan briskly and living without the monthly burden.
Being car loan-free is liberating—no more significant duty to keep up with. My personal experience saw me pay around $233 per month when I financed my vehicle five years ago, a cost lower than the average used car payment, but still a challenge each month.
Fortunately, I could settle my car loan within 18 months instead of the projected five years, freeing up a substantial amount of money. If you’re looking to do the same, there are tricks and tips you can adopt.
UNDERSTAND YOUR MONTHLY LOAN EXPENSE
One crucial step is understanding how much your loan costs monthly. Your car loan is more than a fixed payment; it features an interest that’s chipping away at your payment. To wrap up your car loan swiftly, discover how much the loan is costing monthly with the interest factored in.
When I took my car loan, the interest rate was an overpowering 15.5%. While the monthly payment was manageable, nearly $100 was consumed by interest. So, this money wasn’t exerting any influence on my balance—it was practically wasted.
Identifying the portion of your monthly payment swallowed by interest enables you to decide how much extra you should pay to move ahead. In my case, allocating an additional $100 each month worked well.
ROUNDING UP PAYMENTS
An effortless method to disburse your car loan quickly is rounding up your payments. If your monthly payment is $429, consider rounding it up to $450 or even $500.
Bear in mind that everything extra you append to your loan will directly impact the principal balance. So, even minute extra payments can significantly lessened your loan term.
RECURRING FORTNIGHTLY PAYMENTS
If your salary hits your bank account fortnightly, try matching that with a car payment. Halve your minimum payment, or pay a little more with each paycheck.
This method is a straightforward way to fool yourself into making more payments annually. Indeed, longer months will earn you three payments instead of two.
WINDFALLS
Utilizing windfall gains wisely when settling debt is crucial. Be aware of any unexpected cash inflow you receive and allocate it to your car loan.
It could be a work bonus, tax refund, credit from a canceled service, gifts, even birthday presents.
During festive seasons, some of my freelance clients surprise me with gifts or bonuses. I don’t rely on these, but if they come, I perceive them as a win and put the money to good use.
BUDGET FOR EXTRA PAYMENTS
Regular extra payments are the answer to settling your car loan quickly. Run through your budget and identify areas of potential to recover some money for your loan. You might consider more reasonably priced car insurance, removing cable, carrying packed lunches to work, or discarding unused subscriptions.
When I started making extra payments, I managed only an extra $70. Despite the small figure, it was beneficial and incremented over time. It also built the confidence and motivation I needed.
EARN EXTRA CASH
If there’s no wiggle room for slashing expenses, try making some extra money. Look into potential side hustles based on inherent skills or interests, or consider overtime at your job.
Based on your job, you might be able to freelance in a similar area. For instance, while working at a web design company, I felt our designers and programmers could cash in by freelancing their skills on the side.
Otherwise, pursue a passion project like photography, consulting, or even working with kids or animals.
For quick cash, consider driving for Uber or Lyft, delivering for Door Dash, tutoring online, or being a virtual assistant. No matter your choice, set an income goal, and work backwards to achieve it.
Freelance writing was my choice for making extra cash because I enjoyed it and could work from home. Over time, I was able to contribute $100 extra towards debt and eventually doubled my $233 monthly payment. In some months, due to a combination of managing expenses and earning extra, I quadrupled the payment.
Over time, using these tricks, I was able to pay off my car loan, and you can do it too. It merely requires discipline, adaptability, and creativity. If you attempted to settle your car loan faster, we’d love to hear about the strategies that worked for you!
