If you’ve taken out a car loan you may think that the payments are set in stone, fixed for the term. If you do think this, depending on your finance agreement, you are probably wrong.
Most car loan agreements actually allow you to pay off your loan quicker than the agreed period that has been set. This is called ‘Early Repayment’. The first thing to do is to check to see if your agreement has any Early Repayment Charges attached to it. If not, then you could save yourself a small fortune by repaying your car loan early and that is what I did with Motorline Direct.
The secret is all in your financial planning. Paying off your car loan early will take some determination and willingness. You must want to pay it off early, to save money later.
Here are the steps I took which helped me pay off my car loan quicker.
Step One: How much do I owe?
First things first, obtain the exact amount of money which is owed on your agreement. This will allow you to start working out your finances and start the ball rolling on paying off your car loan early.
You can obtain this amount by contacting the financial institution to which your car loan is attached. This could be a bank, building association or other lender.
Make a note of what is owed.
Step Two: What Penalties are there?
As I detailed earlier, your agreement may contain a charge or fee if you plan to pay off your car loan quicker than the agreed period the loan has been taken for. The lender may impose a penalty if you enquire about this as they will lose an amount of money because of the interest that is paid over the life time of the car loan. Therefore, it’s important that you get clarification on this before you set about paying off your car loan early.
Try getting in touch with your provider to obtain this information. Alternatively, check your car loan terms and conditions.
Step Three: Pay it off in one go?
The car loan provider may suggest, or advise, that you can reduce the amount of interest charged if you can pay off the balance in one payment.
If this is the case, can you afford to do this? This is where the information gathered in Step One can be very useful.
Step Four: Making extra payments off the balance?
Find out whether any extra payments are paid with interest charged, or can the extra payment be taken off the balance with no interest charged.
Step Five: Find out how much extra you can pay off?
This means doing some maths. Do a simple income and expenditure spreadsheet, work out how much you have spare at the end of each month, and use some of that to pay off some more of your car loan.
The biggest cost to most loans is the interest, so if you can pay more off the balance, then the interest will get lower, meaning that you have less to pay over the car loan term.
As I mentioned before, I did it. I made some sacrifices but saved a heap load of money.
If I can do it, you can too.
