Your car payment is likely one of your biggest monthly expenses. Figuring out how to pay off your car loan faster can help you save a significant amount of money, even if you have one of the best auto loan rates. We at the Guides Auto Team will give you strategies for paying your auto loan off early and explain when it may or may not be right for your financial situation.

How To Pay Off Your Car Loan Faster: 5 Effective Strategies

If you’ve decided that going for an early loan payoff makes sense, you have several ways of doing so. However, your best option depends on your personal financial situation and money habits. Below are the methods you should consider to pay off your car loan faster.

1. Refinance Your Car Loan

Refinance auto loans offer you the opportunity to get a new interest rate and new loan term. If you can afford higher payments, you may be able to secure a refinancing loan with a lower interest rate and shorter term.

However, a refinance loan is just a new car loan for a vehicle you already own. It may come with the same fees and additional costs as other loans, so include these costs in your calculations.

2. Split Your Bill Into Two Biweekly Payments

At first glance, making half payments toward your car loan every two weeks might seem like a net neutral. However, this will result in 26 payments over the course of a year instead of 12. That means you’ll make an additional month’s payment each year.

3. Make a Large Down Payment

If you come into extra money from a job bonus, tax return, or other source of additional income, making a large lump-sum down payment toward your auto loan can help you pay it off faster. That’s especially true if your lender counts additional payments beyond the required debt payment toward the principal. This will also reduce the amount of interest you get charged going forward.

4. Round Up Your Car Payments

Any additional amount you pay toward your car loan will help you finish paying it off early. Simply rounding your payment up to the next $50 or $100 increment can go a long way. For example, if your car loan payment is $365 per month and you pay $400 per month, you will have paid an additional $420 toward your loan after a year—more than a month’s payment.

5. Review Additional Car Expenses

You may be paying for things you don’t need with your car loan. Dealerships typically roll things like gap insurance and car warranties into purchase loans. In some cases, you can get a partial refund by ending this coverage, which lowers your monthly payment. If you continue to make the same payment you were making before, you’ll pay your auto loan off faster.

Should You Pay Off Your Car Loan Faster?

The first step to paying off your car loan early is figuring out whether it’s a good idea to do so. While getting rid of your car payment seems like a major advantage, it may not always be the best financial decision.

When You Should Consider Paying Off Your Car Loan Early

There are many situations in which it makes sense to pay off your car loan faster than your contract specifies. Here are some of the most common:

1. You got a raise or extra cash: If you recently got a pay raise or a tax refund or otherwise came into extra unexpected money, you may be able to afford making larger payments.
2. You want to be debt-free: When you pay off your car loan, you go from having debt to having an asset. This could increase your credit score in addition to removing a monthly obligation.
3. You have a high interest rate: You may have had to settle for a high-interest loan when you bought your car. Paying off your loan early can substantially reduce the amount of interest you pay over the life of the loan, especially when your rate is high.
4. You want to save money: Paying off your auto loan ahead of time reduces the amount you pay in interest. Depending on how quickly you pay off your loan, the savings could be substantial.
5. You have a variable-rate auto loan: With loan interest rates on their way up, it may be a good idea to pay off your car loan faster to avoid getting hit with a higher rate.

When You May Not Want To Pay Off Your Car Loan Early

Faster repayment of your auto loan isn’t always the best move. Here are a few situations in which it may not make sense to pay off your car loan faster:

1. Your car loan has prepayment penalties: Some loans come with penalties for early payoff. In this case, you may not save money by repaying ahead of schedule.
2. You can’t really afford it: Stretching to make extra payments on your car loan may seem wise, but if you end up needing to borrow money as a result, it can hurt your financial situation.
3. You have other debts with higher interest rates: In many cases, the interest rate on a car loan is lower than the rates for credit cards, personal loans, or student loans. Focus on paying off higher-interest debts first to maximize your savings.
4. You have better investment opportunities: If you can earn a higher return on investment elsewhere, such as in the stock market or real estate, it might make more financial sense to invest your extra funds rather than paying off your car loan early.