Most car loans consist of monthly payment schedules over 36, 48 or 60 months, and financing is available for up to 72 months. The amount of interest you pay—especially for loans with lengthier payment schedules—significantly increases the overall price of the vehicle. Paying off a car loan quickly requires a plan and the discipline to stick to it.
Step 1
Make a down payment rather than financing the entire purchase price. The time required to save enough money for a down payment will be less than the time required to pay off the same amount rolled into the loan.
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Step 2
Pay half of your monthly bill every other week rather than making a monthly payment. Paying biweekly instead of monthly results in one extra full-month payment each year, which shortens the time period of your loan. Depending on the terms of your loan, biweekly payments may also result in more money paid toward principle. Over the life of the loan, you will pay less interest.
Step 3
Dip into your savings account. If you have money in a savings account—not your retirement accounts—use it to pay off the auto loan. Interest paid on auto loans often exceeds interest received on savings. Once the auto loan is paid off, you may quickly replenish the savings account with the extra cash each month.
Tip
Free up extra cash to apply toward the car loan. Look for ways that you may reduce your expenses, such as cooking your meals at home, walking to work instead of driving and staying in on weekends. Use that money to pay down the principle.
Seek out opportunities to make extra money. Work overtime at your current job or take on a second part-time job. Sell things that you have around your home. Add the extra earnings to your normal car payment.
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