How to Pay Off Your Car Loan Faster (2024)

Like a turbocharged sports car, our financial priorities are always shifting. It’s not unusual that you may have valued a low monthly payment at the time of your car purchase, but now you want to see those loan payments in the rearview mirror. Maybe you came into some extra cash or simply realized the longer your loan term, the more interest you’ll pay. Fortunately, figuring out how to pay off your car loan faster doesn’t have to be difficult.

So, put on your blinker, and let’s get out of the slow lane as we explore the pros and cons of paying off your car loan early. We’ve got some tips on how to bring your balance down faster, including why your local credit union might be the best place to get the process rolling.

How to Pay Off Your Car Loan Faster (1)

Can I pay off a car loan early?

It is almost always possible to pay off a car loan early. However, just because you can pay off your car loan early doesn’t necessarily mean it’s the best move for your financial situation.

Before you decide whether it’s a good idea to pay off your car loan early, take a close look at the details of your loan. The factors to consider are similar to refinancing a car loan. Look at:

  • Current balance. If you still have a substantial balance on your loan, it’s worth looking into how to pay off a car loan faster. But if the loan is near the end of its term, it may not be worth the effort.
  • Interest rate. The higher your interest rate, the more you will pay for the vehicle over the long run, perhaps even beyond its value.
  • Term length. Some loan providers will go as long as 96 months, while others are as short as 24 months. As with balance, the longer your loan term, the more it might make sense to speed up payments.
  • Payment stipulations. You’ll want to know if your loan has an early repayment fee.

You can input these numbers into an auto loan calculator (such as this one) to determine roughly how much you could save by shaving off payments, and then weigh those potential savings against any lender fees or fluctuations in your credit score that could result from the early payment.

Reasons to Pay Off Faster

Paying off your car loan early might be in your best financial interests if:

  • You have a high-interest rate. If you acquired your auto loan with a variable or high-interest rate, you could be paying thousands extra in interest, on top of your loan principal. Repaying these types of loans quickly can significantly reduce the amount of interest you pay.
  • You want to own the car. When you pay off your car loan, you gain ownership of an asset instead of being indebted to a lender. No one can repossess your vehicle, and it is easier to resell the car if you own it free and clear.
  • You want to save money. Paying off your loan ahead of schedule frees up cash in your monthly budget for other expenses and financial goals. It can also reduce the amount of interest you pay over the life of the loan.
  • You want to lower your debt-to-income ratio. If you intend to make another large purchase, such as a home or property, the lower your DTI ratio, the more likely you will get a better interest rate on another type of loan.

Reasons Not to Pay Off Faster

Early loan payoffs sound enticing, but are they always the best financial decision? Here are some red flags that indicate paying off your car loan early may not be the best choice.

  • Your lender charges prepayment penalties. Some lenders charge prepayment penalties to compensate for the interest revenue they lose when you pay off your loan early. These fees could offset any savings you might gain.
  • You can’t afford extra payments. If making extra car payments puts you in a financial bind, it’s not worth stretching your budget or borrowing even more money to make ends meet. Only pay extra toward your loan if it won’t add undue stress.
  • You have other higher-interest debt. Interest rates on car loans are usually lower than interest rates for credit cards, student loans, mortgages, and other forms of personal debt. Paying off those higher-interest loans first can save you more in the long run.

How to Pay Off Your Car Loan Faster

If you determine that it makes good financial sense to pay off your car loan early, you have several options for speeding up the process (without getting a ticket). Here are some of the most popular strategies on how to pay off your car loan faster.

1. Make extra payments

If you go the extra payment route, ensure any additional payments go toward the principal — the original amount of money you borrowed from the lender — rather than the loan interest. By reducing the principal balance, you’ll reduce the amount of interest you pay overall.

These tactics can help you repay your loan faster:

  • Pay biweekly instead of monthly. Rather than making monthly payments, halve that amount and pay every two weeks instead. Since there are 52 weeks in the year, you’ll be making 26 half-payments, totaling 13 full monthly payments instead of 12. You’ll repay your loan a little sooner, and save a bit of money in interest, too.
  • Round up each payment. Simply rounding up your monthly payment to the nearest $50 increment can add up over time without seriously impacting your budget. For example, if your scheduled loan payment is $307 per month and you pay $350, you’ll end up paying an extra $516 a year — more than an extra month’s payment.
  • Make an extra payment each year. If you can't commit to larger monthly payments, at least plan to make one additional payment during the year. Throwing a few hundred dollars toward your car loan can help you achieve financial freedom faster.
  • Put bonus cash toward your loan. Any time you receive a pay raise, tax refund, or extra cash from your side hustle, consider putting those excess funds toward your loan instead of splurging.

2. Don't skip payments

You might be tempted to skip a loan payment when cash is tight. Even though many lenders allow this, don’t do it. Skipping payments moves you further away from your goal by lengthening the term of your loan and accruing even more interest.

3. Cancel add-on expenses

Car dealerships typically add extra coverage like warranties, gap insurance, and service contracts to your auto loan. You don’t always need these add-ons, so review them closely and cancel the ones you won’t use.

4. Refinance your loan

If your current auto loan includes high-interest rates or other fees, refinancing could lower your payments and improve your terms. If you’ve been making your payments on time, your credit score may have increased since you took out the loan, which can give you more favorable options than you had at the time you signed your lease.

Just remember not to follow a shortcut that doesn’t take you to your goal. If you want to pay off your car loan faster, avoid a new refinancing agreement that promises lower monthly payments but actually extends the length of your loan.

In the process, be sure to check the car loan rates at your local credit union. Credit union car loan rates are often at least a couple of percentage points lower, on average, than rates offered by banks. Even a point or two can save you thousands over the life of a loan.

Further Resources on Paying Off Your Car Loan Early

Looking for more information to help you make smart car loan decisions? Check out these resources:

Then, if you’re still wondering how to pay off a car loan faster, or whether you even should, turn to your local credit union for help. Like a diligent passenger who will check your blind spots, credit unions offer personalized service and other benefits you won’t find anywhere else. Pop your address into our Credit Union Locator to find a branch near you.

How to Pay Off Your Car Loan Faster (2)

Did you know?

Many credit unions offer lower interest rates than traditional banks or online lenders, with more flexible underwriting that makes it easy to secure affordable car loans. Unlike large for-profit banks that answer to shareholders, credit unions are not-for-profit institutions owned by members, so they exist to help you reach your financial goals.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.

How to Pay Off Your Car Loan Faster (2024)


How to Pay Off Your Car Loan Faster? ›

There are no legal restrictions to paying off your auto loan early but it may come with fees from your auto loan provider. Paying off a car loan early can be a good option to save money and reduce your debt, but whether it is a good idea depends on your unique financial situation.

Can you pay off a 72 month car loan early? ›

There are no legal restrictions to paying off your auto loan early but it may come with fees from your auto loan provider. Paying off a car loan early can be a good option to save money and reduce your debt, but whether it is a good idea depends on your unique financial situation.

What happens if I pay 100 extra on my car loan? ›

Your car payment won't go down if you pay extra, but you'll pay the loan off faster. Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.

Should I pay off my car loan as fast as possible? ›

You Will Save on Interest

Paying off your car loan earlier in the term will save you the most interest, but paying it off at any point can save you a lot. If your car loan has a high interest rate, the savings from paying off your loan early will be even more significant.

How long does it take to pay off a $20000 car? ›

Payments would be around $377 per month. According to the results, it will take you 60 months, an interest rate of 5% of $2,645, to fully pay your $20,000 car loan. However, the monthly cost of a $20,000 car loan will depend on your repayment period and the annual percentage rate (APR).

How to pay off a 7 year car loan in 3 years? ›

How to Pay Off Your Car Loan Early
  2. ROUND UP. ...
Aug 22, 2022

What happens if I pay my car payment twice a month? ›

Splitting the payment in half and paying twice a month (semi-monthly) saves money. Why? On an auto loan, interest compounds daily. By paying half your payment early, you actually cut down the principal faster, thereby reducing the corresponding compounding interest you'll pay over the life of the loan.

Do extra payments automatically go to principal? ›

When you make an extra payment or a payment that's larger than the required payment, you can designate that the extra funds be applied to principal. Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you'll pay.

What are the disadvantages of paying off a car loan early? ›

Effect on Credit Score: Paying off your car loan early could result in a small drop in your credit score, according to the credit bureau Experian. If you don't have any negative issues in your credit history, this drop should be temporary and your credit scores will rise again in a few months.

How much car debt is too much? ›

Financial experts recommend spending no more than about 10% to 15% of your monthly take-home pay on an auto loan payment. These percentages do not factor in total car expenses, including gas, insurance, repairs and maintenance costs.

How much is the $40,000 car payment for 60 months? ›

When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.

How much is a 50000 car payment per month? ›

The loan payments on a $50,000 car could be $724 or higher -- depending on down payment, interest rate, and loan term length.

How to pay off a 5 year car loan in 3 years? ›

6 ways to pay off your car loan faster
  1. Refinance with a new lender. Refinancing can be an easy way to pay off your loan faster. ...
  2. Make biweekly payments. ...
  3. Round your payments to the nearest hundred. ...
  4. Opt out of unnecessary add-ons. ...
  5. Make a large additional payment. ...
  6. Pay each month.
Jul 18, 2023

What happens if you finance a car and pay it off early? ›

Paying off a car loan early can save you money in interest in the long term. When you pay off a car loan early, you also reduce the total amount of money that you owe, which may boost your credit score. Some lenders charge prepayment penalties that can offset what you would save in interest.

How long does it take to pay off a 72 month car loan? ›

Refinancing with a new 72-month loan is a relatively long time — that's six years. Instead, look for a shorter term and a lower interest rate. If you do refinance for a long-term loan, consider paying extra toward the principal every month to pay off the loan early.

How to pay off a car loan in 2 years? ›

Below are the methods you should consider to pay off your car loan faster:
  1. Refinance your car loan.
  2. Split Your Bill Into Two Biweekly Payments.
  3. Make a large down payment.
  4. Round up your car payments.
  5. Review additional car expenses.

How much does your credit score increase after paying off a car? ›

In the eyes of the credit bureaus, there is no benefit to paying off your loan early. Your score will probably still decrease temporarily; for the same reasons, it would decrease if you paid it off at the end of the loan term. However, there may be other reasons for paying off your car loan early.

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