How to Pay Off a Car Loan Faster in Canada & Erase Your Debts

A few options are available to you if you want to pay off your car loan faster. The first step is determining whether you can prepay your car loan without incurring any penalties.

 

Most car loans have no penalties for paying off the loan before the agreed-upon maturity date, but you should always double-check.

 

If there are no prepayment penalties, you should consider increasing the amount and frequency of your payments.

 

This may necessitate some extreme budgeting or taking on a second job and applying the proceeds to your car loan.

 

Round Up Your Auto Loan Payment

Rounding up is an accounting term that helps save or overpay debts. It could be useful in paying off your car loan.

 

For example, say your car loan is $330 per month. Round it up to $400 or $450 depending on what you could afford and you will pay off the car loan much faster.

 

If you get a pay raise at work, you can use this in your rounding up too. If you’re getting an extra $125 per month as a raise, live the same way you’re living now but add that extra to the loan payment.

 

You’re no worse off and you’re putting an amount that might otherwise get lost in the budget to good use.

 

Make a Lump Sum Payment

Get a large commission or cash bonus? Make a lump sum payment on your loan principal to pay it off. These would usually need to be several hundred dollars or more but can also pay down the loan.

 

Again, make sure the payment comes off the principal and you could reduce the loan significantly.

 

Pay Twice Per Month

Paying your auto loan twice per month is definitely possible as long as you arrange it with the lender beforehand. It can be useful for those paid fortnightly but can also reduce interest.

 

Make the standard payment with a little rounding up and you’re paying reduced interest for two weeks of the month, plus the cash overpayment off the principal. Sounds complicated but it works!

 

Use Savings

Using up your savings to pay off a car loan faster isn’t always the best use of money but it is an option. This is especially true if you think you’re going to have problems paying the loan each month.

 

Just make sure you leave something for emergencies. You know as well as we do that when an emergency happens, it will be days after you emptied your savings to pay off the loan!

 

Refinancing The Car Loan

Refinancing your car loan to a lower interest rate is another way to pay it off faster. This is a more sophisticated strategy, but if you have a high-interest car loan, it could save you a lot of money.

 

You must apply for a new loan with a lower interest rate to refinance a car loan. Interest rates were at historic lows, but they will begin to rise in 2022 and well into 2023.

 

Lenders are more cautious; you must have good credit to get the best interest rates. You should have no trouble getting a great interest rate if your credit score is 700 or higher.

 

 

The most difficult obstacle to overcome is the residual value of your vehicle. Your car is used as collateral for the loan, but its value may be less than the amount you owe on your current loan.

 

This is known as "negative equity or underwater," and it affects the majority of car owners. Previously, you would have had to pay the difference out of pocket to secure the loan, but that is no longer the case if you have the right assistance.

 

Turning To The Experts For Help

You will need to go through a local car dealership to refinance your car loan if you owe more on the car than it is worth.

 

The dealership can purchase your used car at a higher "trade-in" price and then sell you a newer car with a lower monthly payment.

 

Thanks for reading! We hope this article helped answer your questions. If you have any more, please contact us here.