Great Tips for Paying Your Car Loan Back
When you are looking to take care of your debt, it’s always smart to look at the car loan. This is going to allow you to make financial adjustments while improving your financial situation. For most people, car loans are their biggest debt after a mortgage.
Before doing anything, you will want to take a peek at your loan agreement. Some lenders are going to have stipulations in place for what is permitted and what is not when it comes to additional payments. They may tack on fees for those who move forward with an additional payment. This is why it’s best to think about these details well in advance.
Reasons to Pay Your Loan Early
The simplest reason is always going to be finding a way out of your debt. You are going to see a reduction in your financial burden and it’s going to allow you to focus on other things rather than paying off a depreciating asset such as a car. Imagine having the vehicle written off due to an accident and then getting stuck with the difference on your tab.
It can lead to a significant amount of money going the other way with interest included. This is why taking action is a must by paying off the loan as early as you can to bring down the payment term. Take a look at these tips from Loanza:
1) Reduce the Interest Rate
If you refinance the loan, it’s possible to get the interest rate to drop by a bit. This is always going to depend on the markets, but it’s a good way to gain control over the process as soon as you want to. You can end up saving a bit of money by doing this.
2) Increase the Monthly Payments
This is an easy change and one most people can make. You are simply going to increase the amount of money you are paying to the lender per month. For example, you can request to add £100 to your payment each month if it is affordable to you. The increase is going to be a good way to start cutting into the payment term without having to move forward with a larger sum at once.
A good example of this would be a loan that is set at £12,500 at 9% APR (30 months remaining), you are going to have a monthly payment of £259.48. With an additional £50, you can cut the payment term by 5 months.
3) Pay with a Lump Sum
Let’s assume you have been making regular monthly payments on your car loan when one day you receive an inheritance from your grandparents. This can be a wonderful opportunity to go ahead and pay off a massive chunk of your loan in one shot (i.e. lump sum).
To break down this idea, let’s take a look at the following numbers:
Initial Loan Amount – £12,500
Monthly Installment – £259.48
Interest Rate – 5% APR
Repayment Term – 60 Months (5 Years)
With a lump sum of £2,000, you can cut the term by 49 months.
4) Round to the Nearest £50-£100
This is a neat way to improve your payments slowly. The idea is to round up your payment to the nearest £50-£100. This is the best way to cut down on the term without feeling it. Sometimes, it’s a lot easier to manage your budget by rounding up to the nearest figure as it is not as impactful as a lump sum.