How to Pay Off Your Car Loan Fast (9 Ways to Pay It Off Early)

Are you looking to pay off your car loan fast so that you can stop worrying about those debt payments? 

Or, maybe the payment deferral period end date is nearing and want to pay off as much as possible as fast as possible. 

Every month you have to pay the bank just to drive your car. 

Unfortunately, a vehicle is a necessity in most of the United States.

If you don’t have the money to buy the car, truck or van with cash, you have to take out a loan to buy the car.

Now, that you have the loan what steps should you take to pay it off fast? 

We have a few recommendations that you can use to pay off your car loan early.

But, first it’s good to know how car loans work so that a lack of knowledge doesn’t prevent you from paying off your car loan faster.

How Does a Car Loan Work?

Most car loans are similar to traditional loans where the loan has a fixed or variable interest rate and has a set term of payments.

Each month you have a set payment that pays off the interest charged and a portion of the balance.

Early in the loan, more of the monthly payment goes to interest because the loan balance is larger. 

The more you pay towards the balance (through extra payments) early in the loan, the faster you’ll pay off the loan.

Some car loans do have unique structures that make it more difficult to pay off the car loan faster.

Loan originators have structured some car loans so that the loan charges the same amount of interest even if you make extra payments. 

The loan may also have prepayment penalties which result in an additional charge for paying off your loan early.

It is important to be aware of these unique features and know if your car loan does or does not have these negative terms.

Still, while these features might result in additional costs you can still pay off your loan fast. 

How to Pay Off Your Car Loan Fast

If you want to pay off your car loan early, you’re going to need to make some financial alterations to your life.

At the end of the day, you have to pay back money and you have figure out how you can quickly pay back that money. 

This requires understanding how your car loan works and creating a plan to pay back the money. 

Create a Plan for Repaying

If you want to pay off your car loan fast, you need a plan.

That includes figuring out how much money you have to put towards your loan and how often you can make extra payments. 

It can also include adjusting your spending until you have the loan paid off. 

To create a plan, simply write down everything you’re going to do to pay off your car loan.

Cut Down on Nonessential Expenses

One of the best things that you can do to pay off your car loan fast is to spend less money.

That will leave you with more money to pay off debt.

You want focus on spending less on the nonessential expenses.

Your essential expenses like housing, basic foods and other necessities are more difficult to lower. 

So, you should put your focus on spending less on all of the nonessential expenses. 

Nonessential expenses are purchases like dining out, clothing, going out for drinks, etc. 

Since paying off a car loan can be relatively quick, you could also consider canceling subscriptions until the loan is paid off. 

It’s all about putting as many of your dollars towards the debt as fast as possible.

Before every nonessential purchase, ask yourself if the money you’re going to spend is worth not being able to pay off your car loan faster.

If you do this, you’ll pay less interest on the loan which will help you pay off the balance faster. 

Get Rid of Temptation

When you’re trying to pay off debt fast, it is important to become hyper-focused on your spending.

Not only should you be thinking about every purchase but you should also try to remove potential ways of tempting you to spend money.

Stop window shopping at stores or online.

Invite your friends over for dinner or a drink instead of going to a bar.

If you are seeing advertising, think about how you might avoid it.

Or, if there are situations where you might spend money, think of free or less expensive alternatives. 

Defer Purchases Until the Car Loan is Paid Off

The more money you can put towards your loan now, the less interest you’ll pay later and the faster you’ll pay off your car loan. 

So, if you have any large purchases you can defer, try to do it.

Deferring purchases means that the money can go towards the car loan balance.

The lower the balance, the lower the interest you pay each month.

Do It Yourself Instead of Paying Someone Else

Do you pay someone to cut your grass and tend to your landscaping?

Or, maybe you take your car through an automatic car wash?

There are all kinds of purchases we make where we are essentially paying someone else to do something that we need to do.

When you’re making purchases for services, ask yourself if you could do the service yourself.

You don’t have to do this forever, just until you pay off the car loan.

Earn Extra Money to Pay Off Your Car Loan

If you’ve exhausted the ways of spending less money to pay off your car loan fast, you can focus on the other side of the equation, making money.

Every extra dollar counts when trying to pay off your loan fast because each additional dollar is going towards the loan balance and not interest. 

Use your skills and your free time to make some extra money and put it towards your car loan.

While these methods probably will not result in a bunch of additional money, you can learn about some apps and websites that will pay you money.

There are plenty of ways that you can make meaningful extra money by using your free time and your knowledge and skills.

You could even use your car!

Refinance Your Loan

If the interest rate on your car loan is high, you may want to consider refinancing your car loan.

When you lower the interest rate, you’ll pay less interest on the loan which will allow you to put more money towards the loan balance.

If you do look into refinancing, check to see if there is a refinancing fee.

Sometimes, a refinancing fee or loan origination fee destroys all of the savings of the lower interest rate. 

If that is the case, it doesn’t make sense to refinance your car loan. 

Check out this post by CreditKarma for more info on refinancing your car loan.

Make Payments Weekly or When You Have the Money

Typically, your car loan payment is due every month on the same date.

But, that shouldn’t stop you from making additional payments when you have the money.

Due to the way that interest is calculated and charged, you can save money by literally paying down the car loan sooner.

Many loans have daily or continuous interest charged so you can pay less interest by reducing the balance sooner.

For example, let’s say you have a 5% car loan that charges interest daily with a $5,000 balance.

You can pay weekly $75 or $300 every 4 weeks.

If you pay every week you’ll pay about $8 less in interest, but you’ll pay off your car loan four weeks earlier. 

Sell Your Car to Pay Off Your Loan

Consider selling your car if you really want to pay off your car loan fast.

Sometimes we make bad financial purchases and feel we have to stick with the purchases.

You might have bought a more expensive car than you needed and now you are feeling suffocated from the loan payments. 

You might be able to sell the car and buy a cheaper vehicle. 

If you can resale your vehicle for the amount of the loan or close to the amount, you’ll be able to repay the loan in full or nearly repay it.

The difficultly with this is that the value of a car can change drastically when it changes hands from the car dealership to you.

Still, it might be worth it to sell the car at a loss just so that you can get a different car with a lower loan value. 

You’ll want to compare the two loan sizes, how much you’ll save in interest, and how much money you might lose from selling your current vehicle. 

Final Thoughts

There are plenty of ways to pay off your car loan fast.

You just have to create a plan and identify ways that you can put more money towards your loan.

This may mean sacrificing by spending less money or looking for ways to make extra money.

Remember that paying off debt is a short-term activity and once you pay off your car loan you don’t have worry about spending or using your free-time to earn money.

But, you’ll feel the relief of no longer having a car loan.