How to Save Money on Your Car Loan by Paying it off Early

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Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - October 23, 2019

It’s no secret that it’s great to save money. You can save money every day in many ways, but did you know that you can save money on big-ticket items like your car loan? It’s true, and the process is easier than you think.

Car Loans Are Expensive

With the cost of vehicles being what they are today and increasing, it’s a great idea to save money on your auto loan any way you can. Though there aren’t many aspects of car financing that you can directly control, there are some that you can that impact your ability to get an auto loan – namely, your credit.

Your credit score affects the interest rate you’re approved for, and the kind of deal you can get on a car loan. The better your credit score, the lower your interest rate is likely to be. When you have poor credit, the interest rate, which is typically much higher than anything you’d qualify for with good credit, is often in the double-digit range. A double-digit interest rate means you’re paying more in interest charges over the course of a loan.

Even if you can’t wait to improve your credit before taking out an auto loan, you can reduce the impact of the interest rate on the overall cost. To do this, all you have to do is pay off your car loan early.

Early Auto Loan Payoff

Before you scoff at the idea of being able to pay your loan off early, let us explain that paying off your loan doesn’t have to take as long as it’s scheduled to take. If you have a 60-month auto loan, and pay it off even one month early, you’re still saving money. The point is that the more you can pay on a car loan earlier, the better.

This works because auto loans are simple interest loans, which means that interest charges accrue daily based on the loan balance. The lower the balance, the less interest you’re charged. By that reasoning, the quicker you can bring down your loan balance, the more money you can save.

Though any extra you can pay early helps, there are three common ways to pay off your loan early:

  1. Payment splitting – Payment splitting is a practice that decreases the interest charges by splitting your monthly payment in half before its due date. The concept is simple: pay half your monthly payment a couple of weeks in advance, and complete the payment on or before your payment due date. For example, if your monthly payment is $350 due on the 25th of each month, you could pay $175 by the 10th or 15th, and make the remaining $175 payment by the 25th. Payment splitting results in lower overall cost because you’re lowering the interest charges that accumulate in the time between the two half payments.
  2. Bi-weekly payments – This concept is similar to payment splitting, but instead of making a partial payment sometime before your monthly bill is due and paying the rest on the due date, you make half a payment every two weeks. By making half payments on this schedule, you end up making 13 full monthly payments in one year instead of 12.
  3. Round payments up – You can save on interest charges no matter how you pay early, but if you aren’t looking to go outside of your normal monthly payment schedule, you can always pay more each month. A great way to do this is to round up payments. For example, assuming the same payment details as above, you could simply round your $350 monthly payment up to $400 a month to knock down your balance more quickly.

Another Option for Saving Money on a Car Loan

If the options listed above aren’t for you, there’s another one you can consider: refinance your car loan with a lower interest rate. In order to qualify, your credit score has to have improved since taking out the loan.

When you opt to refinance, you should check with your current lender first, but they may not always be willing or able to help you. In this case, you’re going to have to work with a different lender. In order for another lender to allow you to refinance, your vehicle and loan amount must meet their refinancing requirements, which vary by lender.

Get a More Affordable Car Loan with Our Help

If paying more on your auto loan ahead of schedule doesn’t work for you, and you can’t qualify for refinancing, all hope isn’t lost. If this is the case, you might consider trading in your car for a more affordable one, and CarsDirect can help. This way, even with bad credit, you can still save money.

Here at CarsDirect, we can help you get into a more affordable vehicle even if you have poor credit. Start your research with our new and used car sections, and when you’re ready to trade in for another model, let us help you find the right dealer for your credit situation in your area.

We work with a nationwide network of special finance dealerships that have the lending resources available to work with all kinds of unique credit positions. To get the process started now, simply fill out our fast and free auto loan request form, and we’ll get to work for you.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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