Early Settlement on Your Car Loan

Debt has become a way of life in the USA, and many other countries in the developed world. Of course, only a small number of people have the resources to buy real estate without taking out a mortgage or fund their children’s college education without a student loan.  Sometimes other forms of debt are not quite so justified; they can be a sign of a family living a lifestyle beyond its means. Car loans can perhaps be justified because they fund a fairly large purchase but whether living with almost a permanent car installment loans online makes sense is another question. Often people seem to change cars as soon as their last loan is fully paid off; it is not unusual for them to change cars even before the last loan is full paid. Is this you? Do you really need to change your car that frequently? It appears that it is just a minority that feels uncomfortable with debt and wants to pay everything off a quickly as possible.

Settle a Car Loan Early

If you do this you will save yourself interest, and it will do no harm to your credit score that is such an important factor in both your getting finance, and even if you are looking for a new job. Prospective employers sometimes refer to your credit score as part of the recruitment process because it is one sign of your reliability.

Your level is debt plays a part in your credit score. The ration between your debt and existing available credit is important. Your credit score will drop if you take on more debt, but if you pay on time, and settle early, those entries in your credit history will boost it.  If your credit score is borderline for borrowing, around 600, you cannot afford that initial drop as comfortably.

How Can You Do It?

Well, obviously, you have a fixed monthly repayment for the term of the car loan. If you arrange with your bank to pay more each month, you will finish the car loan earlier. You can accelerate that process for adding more each month as you progress through the term. For example. if your payment is $265 a month, why not pay $300? You will hardly notice the extra going out each month. You can do the calculations for yourself but you will be reducing your term by a few months if it is a five-year agreement.

Biweekly Payments

If you make 26 payments in a year, paying half the monthly figure due, rather than 12 which is based on the months in the calendar, you will effectively pay an extra payment annually. You need to discuss this with your lender to ensure there are no penalties involved in doing this.

You’re only required to make auto loan payments on a monthly basis, but if you strike a deal with your auto lender,

An Extra Payment

If the bi-weekly payments are difficult because of your cashflow then consider an extra month’s payment each year. You may get the chance to pay more if you receive a tax refund or a bonus at work. If your monthly payment is that $260 described above, calculate your annual payment, add a further $260. If you divide that total by 12, pay that as your monthly remittance.

Introductory Option

Some lenders may give you a month off. It might be Christmas when your spending may be higher. If you avoid taking the first month off, or a subsequent month like December, you will pay off your loan earlier. Remember, the lender is not giving you a free month.

Conclusion

It is a good feeling to pay off any loan early. You should really try to avoid living with a permanent car loan, taking out a new one as soon as the last one finishes. If you take out a loan and finish it six month’s early, even that is breathing space for you to use money in a different way. You will find yourself paying out less interest to your lender and with your credit score receiving a boost, you might even get a better interest rate next time round.

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