Getting your finance sorted is just one part of the overall picture when it comes to financing a new vehicle. Whether it’s a personal loan or a novated lease, the next issue to consider is obviously paying down the loan.
Weekly, fortnightly or monthly repayments are the standard way to get on top of this, and it is something you need to consider when you first set up your loan so that you know you are borrowing within your limits. At the end of the day, these payments should be something that you can manage without much of a squeeze, not to mention, stay on top of if things go pear-shaped, as has happened for many amid COVID-19. You might also want to set your repayments to fall in line slightly after your income cycle, which will help keep your bank balance in a slightly more sustainable position as far as cash flow goes.
The sooner you can pay a loan off, the better, as this reduces the amount of interest that you end up paying. Some loans have a small penalty fee if you pay the loan off earlier, which is designed to discourage you from doing this. However, if you sit down and crunch the numbers, it’s not uncommon to find that this penalty fee may be less than what you would have paid in interest anyways. Alternatively, make sure you pick a loan where you’re free to pay it down at an increased rate, should you have the capacity to do so.
In any case, these are some of the ways you can repay your car loan earlier than the full term of the loan:
- Make a tight (temporary) budget and see if you can cut a few corners off your other expenditure here and there so you can increase the amount of your repayments. In current circumstances, amid COVID-19, holidays are all but off the table. But should the borders eventually open, you will have to use your willpower to postpone that desire to go travelling, whether it be interstate or further afar. Consider cutting down on retail ‘therapy’, and if it means you need to cancel your credit card or close your Afterpay account, so be it! If you truly want to spend, opt for second-hand or more affordable variants of items instead. Squeezing every last penny is vital to increase your payments and repay your loan sooner.
- Have you managed to build a surplus? Instead of blowing it on a shopping spree or putting it into a savings account, use the amount to pay a bit more of the loan. The amount of interest you would have earned by putting it in a savings account is marginal, especially in the current environment where interest rates are at a record low and likely to remain there. A penny saved is a penny earned, and the government can’t tax you on it!
- Stay informed. Don’t just leave the loan amount sitting there and ignore it. Keep tabs on how much there is left to pay, because it might be something that you can manage to pay off outright.