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How to Pay Off Your Car Loan Faster? Here’s How!

  • Auto Refinance
  • Renee Martin
  • 12 minutes

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There’s nothing more depressing than paying high monthly amounts on your auto loan for years on end. Use these tips to pay off your car loan faster, improve your credit, and save money in the long run!

Here are a couple of quick numbers for you – the average length of car ownership in the US is 79 months (roughly 6.5 years). However, did you know that almost 69 of those months (or 5.7 years) are spent paying car loan payments? That essentially means that Americans actually “own” the car they drive for less than a year before replacing it!

While taking on a long loan term may seem great because of the low monthly payments, you will often end up paying more than the principal in the long run! If you would rather pay off your car loan in the fastest way possible, then you’re in the right place.

How to pay off a car loan faster

Should You Pay Off Your Car Loan Early?

To decide whether you want to pay off your car loan soon, analyze the following factors and see if you can save more money in the long run.

  • Remaining loan term: Generally, any loan term longer than 72 months will incur high interest charges. If you had taken a 72-month, 84-month, or 96-month loan, it makes sense to pay it off soon.
  • Current remaining balance: Still have a large loan balance after 3-4 years of monthly payments? You’ll save more money by closing it as soon as possible.
  • Prepayment penalties: Lenders receive interest for every month of the loan term, so they typically do not encourage early payoffs. If the prepayment penalty is negligible compared to the savings you’ll make then it’s better to pay off the loan,
  • Calculate how much you can save: Use an auto loan calculator to quickly find out your gross savings. Even if it isn’t as much as you expected, closing the loan may have other knock-on effects like a bump in credit score, etc.
  • Current credit score situation: Paying off a loan early can help your credit score by lowering the amount of credit you use. The less debt you have, the more likely it is that your credit score will go up. Lenders prefer borrowers with a low credit utilization ratio, showing that you can make payments on time and not use up all of your credit.However, it could negatively affect your credit score if you have no other open installment loan options. Lenders tend to look more favorably on open credit accounts that are in good standing than on closed credit accounts. And if you don’t take out another installment loan, you’ll limit your credit mix.

Also Read: How are car loan payments calculated?

Here Are The 9 Best Ways to Pay Off Your Car Loan Early

1. Refinance your auto loan for a lower term

Auto refinancing is a great way to reduce your loan term and pay off the loan easily. Refinancing your car loan involves taking on a new loan with better terms and conditions than your current loan. The new lender will pay off the existing loan balance, and you get to pay reduced payments due to a lower APR, shorter loan term, or both. Keep in mind that this only works if the new loan term is smaller than the current one.

2. Review any add-on expenses in your car loan

Paying off your current loan will take longer than usual if you have additional expenses and plans bundled into the loan amount. Some examples of these add-ons include:

  • Extended Warranties
  • Vehicle Service Contracts
  • Guaranteed Asset Protection (GAP)
  • Tire, wheel, and maintenance warranties

Depending on which ones are important, you can exclude the unnecessary items and reduce the total loan amount to be paid. Different dealers may have their own procedures for excluding these add-ons, so reach out to them if you want to economize.

3. Choose bi-weekly payments

Bi-weekly payments allow you to make one extra payment every year. This is because not every month has four weeks – some months are slightly longer. If you choose monthly payments, you will make only 12 full payments in a year. However, choosing the bi-weekly options means that you’ll pay 26 half-payments – or 13 full payments. This can help you make one additional payment in a year and close the loan earlier.

4. Ensure extra  payments go towards paying off the principal

Unless explicitly mentioned, most of the extra payments you make go towards repaying the interest charges and not the principal. However, making more payments to your principal can quickly reduce the amount of time you spend paying off the loan.

This is because auto loans use simple interest to calculate monthly payments. Repaying the principal first helps reduce the loan balance faster, thereby bringing down the time spent in repaying the loan. Ensure the extra payments are marked “principal-only” when paying.

5. Use the Snowball or Avalanche methods to prioritize

The Snowball Method of debt payments involves making extra payments to the smallest debt you owe until it is completely paid off. If you have multiple loans, you can start with repaying the smallest and work your way to the next largest debt, and so on. This is a great way to motivate yourself to pay off your pending loans.

However, if you want to save money right off the bat, you can use the Avalanche Method of debt payments. This prioritizes the loan with the highest interest, ensuring it is paid off first before moving to low-interest loans.

6. Round up your payment to the nearest $50

If you feel it’s unlikely you can make any extra payments in a year, commit to rounding off your monthly payments to the nearest $50. For example, if your payment is $207/month, round it off to $250. This is a small enough increase that it doesn’t affect your monthly finances, but will still help you cumulatively repay the loan quicker.

7. Use pay raises/bonuses/refunds to pay off your loan

Your finances are usually a test of your willpower – and it is most tested during a pay raise or bonus! If you find yourself getting windfall gains at work, put them to work by making as many extra payments on the car loan as you can. While it may hurt to not increase spending in the short run, you can get more savings in the long run by closing the auto loan sooner!

8. Earn additional income

If you can’t find extra money in your budget to put toward your car loan, think of creative ways to make some extra cash. This could mean selling or renting things you own or getting extra work. Here are some options:  

  • You could rent out a room in your home. 
  • Help friends and neighbors with their yard work. 
  • You can sell things like old musical instruments, tools, jewelry, and workout gear on the Internet.   
  • Take on a short-term job that pays tips, like ride-sharing or working in a restaurant. 
  • Try to find a new job or talk to your boss about a raise or promotion. 

9. Pay each month

You should still pay your loan every month, even if you are ahead of schedule. This will stop interest from building up, so more of what you pay goes toward the principal and less goes toward interest. And making regular payments even when you don’t have to will help you pay off your car loan faster.  

When Not To Pay Off Your Car Loan Early

If you pay off your car loan early, you’ll have a few hundred dollars more every month. But in some situations, you could hurt your finances more than help them. So, it might not always be the best thing to do. Don’t pay off your loan too soon if your loan situation falls under any of the following: 

If there is a prepayment penalty 

You have to pay a prepayment penalty if you pay off your loan early or make extra payments. It’s the lender’s way of making up for the interest you would have paid on time. If there is a penalty for paying off the loan early, make sure it won’t cost you more than the interest you would pay otherwise. 

If you signed up for a pre-computed interest loan 

With precalculated interest, more of the interest you pay each year is due in the first month than in the last month. Paying off your loan early won’t make a big difference in how much it costs. In this situation, it might be best to follow the loan schedule. 

If you don’t have much debt

Even though it might not make sense, your credit score is based on your debt types and how long you’ve had them. Since car loans are long-term debt, making regular payments for years will help keep your credit score high. 

One thing to keep in mind is that paying off your loan could lower your credit utilization ratio, which makes up about 30% of your credit score. If you have other debts and a high ratio of debt to income (DTI), getting rid of one account should help your score. 

Can you pay off a car loan early?

Ways To Lower Your Monthly Car Payment

You can defer your payments if you don’t want to refinance your loan. With deferment, you can skip a payment if you are having short-term money problems. Lenders may give you an extra one to three months to pay back your debt. But deferring your payments just moves them to the end of your loan, so you will still have to pay them back. You will also have to pay interest, so it will cost you more in the long run. 

Your loan may be harder to change, but it doesn’t hurt to ask. Loan modification is similar to refinancing in that it changes the terms of your loan by either making it last longer or lowering your interest rate. If you can get your loan changed, you might be able to lower your monthly payment without needing to find a new lender. 

Frequently Asked Questions

What Is the Fastest Way to Pay off a Car Loan?

The fastest way to pay off a car loan is either by auto loan refinancing or closing the loan using a lump sum payment.

Will My Car Payment Go Down If I Pay Extra?

No, extra payments will not reduce your monthly payments, which are already fixed at the time of signing the loan. However, making “principal-only” payments will reduce the loan balance faster and help you close the loan sooner.

What Happens If I Double My Car Payment?

Doubling your car payment will reduce your interest charges twice as fast, which means you can start repaying the principal sooner. This means you can reduce the loan term quicker!

Can You Pay off a Car Loan Early to Avoid Interest?

Yes, paying off a car loan early can help you avoid accumulating interest on the remaining loan balance. You can either start making larger payments on your loan, refinancing your car loan to get a better rate, or pay it off with a lump sum amount.

Does Paying off a Car Loan Early Affect Your Credit?

Yes, repaying your car loan early can reduce the amount of debt you owe, thereby improving your credit score. It also signals to other lenders that you are capable of repaying loans on time, and they will be more amenable to lend to you in the future.

Should I Pay My Car Payment Twice a Month?

Yes, choosing biweekly payments will help you make one extra payment every year, thereby repaying the car loan faster.

How to Get Out of a Bad Car Loan?

If you find yourself stuck in a loan with high APRs and high monthly payments, then you should consider the following options:

  • Refinance the auto loan for a lower APR and a better term
  • Renegotiate with your dealer for a temporary forbearance
  • Trade in your car for a cheaper one and pay off what you can
  • Sell the car to a third party and pay off the loan
  • Voluntary repossession – turn in the car to the lender

What Happens When You Pay Off Your Car?

If you live in a state where an individual is a titleholder when the loan is being repaid, the lender will send you a statement of lien release. If you live in a state where the lender holds the title until repayment, they will send the title to you marked as free and clear of liens.

Is It Better To Pay Principal Or Interest on a Car Loan? 

It is preferable to pay down the principal to lower the interest paid on a car loan with simple interest. 

What Is The Best Way To Pay Off a Car Loan Early?

Refinancing or making additional payments are the most effective ways to pay off a car loan faster. Even if it’s only a few additional dollars per month, you will reduce your debt and possibly reduce the length of your loan by a few months. 

When You Pay Extra on a Car Loan, Does It Go to the Principal?

This includes the interest rate and any other expenses associated with the loan. Your automobile payment will include both principal and interest. During the beginning of the loan period, more interest will be paid than principal. Over time, more of the payment is applied to the principal balance. 


It may not always be beneficial to pay off your auto loan early. If you would incur prepayment penalties or suffer a potential credit score hit, the savings will not be worth it. But if you want to get out of debt, one of the quickest ways to generate room in your budget is to stop making automobile payments.  

Refinancing or making additional payments are the most effective ways to pay off a car loan faster. Even if it’s only a few additional dollars per month, you will reduce your debt and possibly reduce the length of your loan by a few months. 

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