How to Pay Off an Auto Loan Early

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A car loan is one of the biggest causes of debt for an average American. You can not buy what you want when you want it if you are buried in debt. Paying off a car loan early could free up your money for many different things. If you do not want to be trapped under a mountain of debt any longer than needed, it is time to figure out how to pay off your car loan -- and fast.

Before You Start Verify If You Can Pay Off Your Car Loan Early Without Penalties


Paying off your loan faster won't save you any money if your car loan imposes penalties for early car loan payoff. Make sure your car loan allows an early payoff. Most loans do allow early payoff. You especially need to be concerned about penalties when you have very bad credit and are locked into a very high interest rate.

1. Refinance to a Lower Interest Rate

Has your credit score improved since you purchased your car? If you have been paying all of your payments on time for a year or two, it is possible your score has improved. Refinancing to a lower rate is a very effective way to pay off your car loan early. By lowering your interest rate, you will slightly reduce the monthly payment – and if you are able to pay more than the monthly payment, you’ll be well on your way to reducing your debt.

Key Points of Car Loan Refinancing

  • Know your interest rate
  • Check for a lower rate at a credit union, bank, or online
  • Finance for a lower rate and shorter term

Remember you are trying to pay off your debt fast. Reducing your interest rate means you will pay less overall, however, it does not mean you will pay it off fast if you choose a long loan term.

For example, if you have 3 years left on your car loan with a five percent interest rate and refinance to a 5-year loan with a 2.5 percent interest rate you just extended your loan two years – unless you choose to pay the loan off early. This does lower your payment and put money in your pocket to spend on other higher interest debt. If you do extend your car loan, make sure to increase your monthly payment amount in order to pay it off at a faster pace.

2. Pay Your Car Loan Bi-Weekly


Take your monthly car payment, divide it by two, now make that payment amount every two weeks. This is kind of a cool trick if you have never heard of it before. If you pay every two weeks, you will make 50 percent of your payment 26 times as opposed to a typical 12 payments a year. Essentially, you will be paying one extra payment in its entirety a year.
Another benefit to biweekly payments is that you will pay less interest over the course of the loan. Paying every two weeks means your balance is continually decreasing, lessening the amount of interest charged against your remaining balance versus paying once a month.

Doing this step alone won’t help you pay off your loan very quickly on its own, but it is good to get into the habit of paying your loan off consistently. You can try and increase your bi-weekly payment amount to pay the loan off even faster.

3. Pay on Your Extra Pay Periods


Similar to paying biweekly is paying extra on your car loan on your extra pay period. It is possible you never even thought about it before but if you get paid weekly you normally get four paychecks a month. Four months every year you will receive five paychecks.


If you get paid biweekly, you normally bring home two paychecks a month. Two months a year you will get paid three times in a month. These extra paychecks are fun to blow on frivolous things, but they are perfect for paying down your car loan debt. Remember the more you put towards your loan, the faster you will get it paid off.

4. Snowball Debt Payments


This method applies to all debt, car loan payments included. Take your lowest amount of debt, scrimp to put any extra money possible to get it paid off. Then take the money you were paying towards that debt and apply it to your next debt. Once that one is paid off, apply the full amount you were paying towards your next debt until all of your debt is gone.
Snowball debt payments work beautifully. Some people prefer to start with the highest interest debt first instead of the shortest time to pay off debt. Either way, it will work to pay off your debt. The problem is you cannot be adding more debt at the same time if you ever want to get out of debt. Debt can be addicting. The instant gratification feels great. The debt piles up and ends do not meet. Stop getting debt in order to pay it off.

If your smallest loan isn’t your car loan, then paying off higher interest small loan amounts will free up even more money that you can use to pay off your car.

5. Tax Refunds, Bonuses and Pay Raises


You are probably getting the idea now, get extra money and put it towards your car loan. Coming into some money is a great way to lower your car loan balance. Pay off your debt then you will truly be able to enjoy your money.
Pay raises are a great way to pay down debt. Often times a pay raise is not a huge lump sum. A little extra each month can easily get lost and you do not even know where it goes. Adding it to your car loan payment will make the money count for something. You will know it is being spent productively and you will most likely never miss it.

6. Moonlight


Picking up an extra job is a great way to pay down debt. Plus, you will be too busy to spend any money. Choose something you like. A moonlighting job should be something that makes you happy. Walking dogs, bartending, writing, whatever job you decide to pursue, make sure it is flexible.

7. Sell Items Online


It is kind of like having a garage sale just on a bigger scale. Selling items online is easier than ever before. You can sell any of your belongings online, board games, books, clothes, electronics and so much more. Some people even do it for a living.
Love exploring garage sales? Try picking up some good finds at local garage sales and reselling them online. It does take a little computer savvy to start selling online but with a little bit of research, you will be able to make your first sale in no time at all. Remember you do not need to make thousands of dollars, just enough to help pay down your car loan debt. Even as much as $25 to $50 a month could take months off your loan term.

8. Coupon Clipping


The dreaded couponing. You do not have to tell me how annoying coupons can be, but the truth of the matter is that they work. Grocery costs have skyrocketed in recent years and feeding your family is seriously expensive. The best ways to reduce grocery costs include using coupons, buying off-brand, and reducing waste.

  • Only use coupons on items you would normally purchase.
  • Check to see if your grocery store has a coupon app and be sure to use it consistently
  • Keep track of your savings, you will be more likely to keep at it if you see your savings tallied up at the end of the month. Make sure you use the saving for paying down your debt

9. Cut the TV Cord

Are you still paying for cable or satellite television? I know change can be tough, but finding extra money in your bank account every month can ease the pain. Internet TV services like Hulu and Netflix are huge now and offer so many options. Cable and satellite bills can approach $200 a month in many cases making it very costly.

  • Hulu starts at $7.99 a month
  • Netflix's Basic Plan is $7.99 a month


Don't think these two services will be enough to entertain you and the kids? Do not forget about Youtube and services such as AppleTV, Amazon Stick, and Chromecast all of which allow you to watch different apps on your television, tablet or smartphone. Many of the apps offer free shows and you can pick a-la-cart paid apps like HBO Go and WWE.

If the idea of dropping TV altogether seems crazy to you, try reducing your package to local channels only and supplementing with these other services. You could still save $50 plus a month and you can try it out for a few months.

Calculate your savings per month, then use a car loan calculator to help you determine how much faster you will be able to pay off your car loan. Make a commitment to yourself to make the change until your car loan is paid in full.

10. Shop for a Lower Car Insurance Rate


Maybe you are already receiving the lowest car insurance rate available to you, however, there is a very good chance you can find a way to lower your rate. If you have not shopped around for a cheaper car insurance rate in the past two years, it is time to review your policy along with a couple of other quotes.

  • Talk to your insurance agent about different strategies available to lower your car insurance cost. Review all discounts and evaluate the possibility of switching deductibles and or coverage.
  • Get quotes from three other insurance carriers. Try your best to identically match coverage in order to determine a quote's competitiveness. Tip: Save time by getting quotes from an independent insurance agent.


Paying down debt fast takes a lot of willpower. Similar to losing weight, it takes time. Consistency leads to progress. Paying off your car loan months or even years early is great for your financial future. There is nothing quite like the freedom of being debt-free. Take a month to celebrate your payoff, but then get back on track to pay down other debts or you could always start saving for your next vehicle purchase.