Five ways to pay off your car loan faster

The average car loan repayment

in Australia is about $550 per month. Of the approximately 2.7 million drivers who have a car loan, the majority pay it off over four years. It’s no surprise that many would like to be relieved of the burden of their monthly repayments sooner rather than later. After all, even a relatively small repayment and modest interest rate add up over several years. So here are five ways to pay off your car loan faster and get you behind the wheel debt-free.

1. Round up your repayment amount

A straightforward way to make faster headway on your car loan repayments is, very simply, to pay more each month. A useful approach can be to ‘round up’ your monthly repayment. The extra might not make too much difference to you month by month but will get your loan paid faster and you’ll reduce the overall interest you’re up for.

For example, if your car loan is $26,000 at an interest rate of 7% over four years, your monthly repayments will be $623 and your total interest $3,885.

If you rounded up those repayments to $700 a month, you’ll pay off your loan four months faster and shave just under $500 off your total interest.

Heads up – check your loan agreement as some lenders prohibit early prepayment or charge prepayment or exit penalties and use tools like an online calculator

if you want to calculate your own repayments.

2. Make your repayments more frequently

Most people make monthly repayments on their car loan, but upping the frequency to weekly or fortnightly can make a significant difference. Twenty-six fortnightly payments will reduce your debt faster than 12 monthly payments and can save you interest also.

Sticking with the same scenario above, if you switch from monthly repayments of $623 to fortnightly payments of $311, you’ll save nearly $400 in interest.

3. Contribute any unexpected cash to paying off your loan

A work bonus, a gift from a relative, or an unanticipated tax refund can all go a long way to taking a good chunk off your car loan. If you need a bit of motivation, think about what you’re saving in the longer term and what you could ultimately spend that saving on.

4. Consider refinancing (but read the fine print)

Refinancing your car loan can help you lower your repayments and pay off your loan sooner. It involves applying for a new car loan offering a lower interest rate or shorter term and using the funds to pay off your existing car loan. You then make repayments on your new car loan at an improved rate.

You might find that your existing lender will reduce the term of your loan from, 48 months to 36 months. It will mean higher monthly repayments but if that’s financially possible for you, it might be worth it to slice a year of your loan.

Just make sure you check the conditions associated with your existing car loan and be aware that the costs associated with refinancing or renegotiating terms might lessen your potential savings.

5. Be disciplined

The more repayments you skip, the longer it will take you to pay off your loan! It can be tempting to let repayments slide and put the money towards other more immediate needs (or wants). But beware of the slippery slope of missed payments. Every skipped payment will see you pay a greater amount of interest over a longer period.

^Disclaimer

^{Viva Energy Australia Pty Ltd (“Viva Energy”) has compiled the above article for your general information and to use as a general reference. Whilst all reasonable care has been taken by Viva Energy in compiling this article, Viva Energy does not warrant or represent that the information in the article is free from errors or omissions or is suitable for your intended use.}