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Pay off your car loan faster using these 7 tricks

Here are some simple ways to shorten the length of time it takes to pay off your car and pay less interest.

By MSN Money Partner Jun 23, 2014 3:00PM

This post comes from Allison Martin at partner site Money Talks News.


Money Talks News on MSN MoneyWhen they're purchasing a car, it's almost second nature for many consumers to secure a loan without giving much thought to the interest that comes with them.


Man sitting in a convertible © Image Source, Getty ImagesDon't believe me? Think about the last time you secured an auto loan. Did you use an amortization calculator beforehand to determine how much you'd end up paying for the vehicle over the life of the loan? In some cases, you will find that the cost of the loan actually outweighs the benefit of owning the vehicle.


Fortunately, there are ways to escape the wrath of the auto loan interest monster. Here are a few simple options to consider:


1. Round up

Not only will you save in interest by rounding up to the nearest hundred when you pay your bill, but the car will be paid off faster.


To illustrate, let's assume you purchase a car for $20,000 with an interest rate of 3.9 percent and term of 48 months. This yields a monthly payment of $450.69. However, rounding this figure up to $500 will shave five months off of the payment term.


2. Refinance

If you can secure a lower interest rate, refinancing may be worth a shot. However, don't be fooled into thinking that you should take advantage of the lower monthly payments and extended terms to give your wallet a break, or you will end up paying more in interest.


3. Double up one month

Have you been stung by the luck bug and been gifted an unexpected sum? Use your newfound money, whether it be a tax refund, work bonus or inheritance, to make at least one extra payment for the year. You can also divide the monthly payment by 12 and remit this amount each month in additional to your usual amount to achieve the same result.


Using the same example from above, this method will shave three months off your payment term.


4. Cut costs

Do you find it difficult to scrape up extra funds to pay down the auto loan balance faster? Start by making cuts to variable expenses. Need a few ideas? Skip pampering sessions and dining out for a while or cut all the high-end entertainment. Also, set a grocery budget for the week and stick to it.


Still no luck? Try selling some of the items lying around your home that you no longer need.


5. Pay often

This will require stellar record keeping on your part, but if you frequently allocate residual income to the loan, you will knock interest out of the park. However, be sure to speak with the lender about any restrictions or penalties that may apply for early loan payoffs.


6. Never skip a payment

The skip-a-payment option is an enticing offer my credit union likes to make around the holiday season to help customers free up funds for gifts and travel expenses. But don't fall for the trap, because you will have to make it up in the end. The lender simply extends the loan to account for the extra payment and accompanying interest.


7. Make biweekly payments

If permitted by your lender, make half the monthly payment each time you get paid to reduce the interest paid over the life of the loan. Reasoning? Well, there are 26 pay periods in the year, so you will end up making one extra payment for the year using this approach.


If you are in the market for a new or new-to-you car, you always have the option of stashing a nice sum of cash away so you can afford to make a handsome down payment. This will equate to a more affordable monthly payment from inception, and enable you to pay off the car faster with excess income.


More from Money Talks News

56Comments
Jun 23, 2014 4:44PM
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I always round up. It does work. It's getting harder and harder but some months if I can I add an extra $5.00 to $10.00. Anything to pay down the debt. Same with a credit card. Interest sucks.
Jun 23, 2014 4:10PM
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All this advice is good provided you have the right kind of habits concerning a good solid budget. For the younger generations, unless they make very good money, never use credit cards and don't eat out much, maybe this advice will work. Also, don't buy a vehicle you can't afford or is more than what you need. It's not a disgrace to buy a vehicle under $15,000 or $20,000. Too many people nowadays want to keep up with the Jones and Smith's and live like there is no tomorrow. Maybe that was possible before the meltdown. But, no more.
Jun 23, 2014 5:23PM
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If you have a $450/month car payment, you are doing something wrong!  Either make a bigger down payment or buy a less expensive vehicle.

Buy used and pay it off as fast as possible - 3 years max.  Then keep the car for another 7 years and keep paying yourself every month.  When the wheels finally fall off, you'll have enough cash to buy your next car outright.
Jun 23, 2014 4:24PM
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Selling crack would probably help too, doesn't mean its a good idea...
Jun 23, 2014 9:14PM
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I've been doing the first one already. Had to get a new car last year due to a car accident (which was sad my other car was paid off) but now I have to pay $162 and some change a month min. payment but I've been paying $200 a month on average, those months I do better with money I bump it up to $250 or $300 I pay. So far has been working for me and I have already cut a month off of my loan because I've been paying more then I needed.
Jun 24, 2014 9:00AM
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I'm doing just that - paying half the amount every paycheck.  My car payment used to be $475.  Now paying it that way the bank is telling me I "only" need to pay $387.  I already shaved nearly $100 off my monthly payment, but i'll continue paying $476/mo to pay it off quicker.  Once i'm done with my student loan (Which i'm paying $500/mo on to get rid of it) I'll tack that onto the $475 and pay it off even sooner.  (Debt snowball)

[I had to edit this because of rude commentary.  I did not purchase anything from Dave Ramsey's website.  I do know there is a plethora of information online for free, which I utilize often]
Jun 24, 2014 1:05PM
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These articles are obviously for people with no common sense.
Jun 23, 2014 10:14PM
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Are you buying a house or a car.


Oh yea,  cars cost almost as much as a house.


Wake up America!!

Jun 23, 2014 6:36PM
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If you can't pay off your car in three years, you bought too much car.
Jun 23, 2014 10:14PM
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Keep a good credit score, never pay cash when you can use someone else's money, find the lowest possible interest rate, put as little money down as you need, never pay extra on the loan so you can grow your cash reserves from compounding with that money, keep the remainder of your money well invested, and, at the end of the term you have your paid off car and more money than you started out with from your well invested cash. 
Jun 24, 2014 1:19PM
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The IRS cover up makes watergate look like  a minor infraction It is time to put corrupt liar president Obama in jail Impeach the liar

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I don't think you will save much money in interest by paying more per month.  The payments come off the back end of the interest.  If you save 3 months of payments, the principal is already paid in advance, and the interest for the last 3 months may only be about $4 or slightly more, per month, depending on how much you financed.  So, to save $12, you spent more per month, for several years, than your contract called for.  Pay the amount you agreed to, and go have that night out, or that spa day.  The burden of paying more per month isn't really worth the effort.  Banks like it because they get their money back quicker, and lose almost none of the interest.
Jun 23, 2014 8:24PM
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Oh god MSN is sooooooooooo facking lame with these crap articles !
Jun 23, 2014 9:18PM
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Buy a clunker and hope Obama comes around with more cash for clunkers. 
Jun 23, 2014 9:28PM
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If you learned something from this article your and idiot
Jun 24, 2014 9:23AM
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If you keep a car more than five years. you end up in several repair costs. Endless repairs one after the other. It is the same as paying for another car loan. So what do you want to do? keep the same old car and do repairs, or buy a new car and pay the loan? You can never get rid of car loans in your life. So go for the new car after 5 years. I don't buy cars. I lease cars, so I get to drive new cars every 2 years.
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