The Best Way to Pay Off a Car Loan Early

The average car loan has a 60-month, or five-year, payment term. Lengthening the loan term lowers your monthly obligation, which makes a vehicle more affordable. Of course, paying on a car loan for five or more years increases the interest payment, and you'll pay more for the car in the long run. But even if you select a 60-month plan when you sign your loan documents, there are ways to pay off a car loan early.

Instructions

1. Drop a lump sum on your car loan. If you come across extra money such as an inheritance or large tax return, use this money to pay down your auto loan balance. Knocking down the balance reduces your loan term and you'll pay off the car earlier.

2. Ask your lender about biweekly payments. Pay half of your car payment every other week, rather than every month, to save money on interest payments and reduce your loan term by several months.

3. Pay more than your monthly payments. Voluntarily increasing your monthly payment decreases the interest paid and shortens your loan term. Evaluate your budget to see if you can afford to pay an extra $50 or $100 a month.

4. Select a three- or four-year loan term. Refinance your auto loan and choose a shorter loan term to pay off your loan early.

5. Find a buyer. If you're ready to get rid of your automobile, find someone to buy it and use the proceeds from the sale to pay off your auto lender.

References

• Car Loans Calculator: How to Pay Off a Car Loan Early
• The Motley Fool: 9 Ways to Pay Off Debt