Obtaining finance for your new car is one of the best ways to leverage your current financial position to have access to an asset you otherwise might not have been able to afford. With that however, comes the responsibility of making your repayments to clear the debt.
While you often have several years to do this, clinging onto debt is never wise if you can find a way to settle your loan as soon as possible. When interest rates are rising, as they are now, this is an even bigger issue to consider amid budget constraints.
For a variety of reasons, some people find it more manageable to pay off their car loan quicker. For those with difficulties however, there are a series of effective tips to repay your car loan quicker.
Budget, budget, budget
One of the first things you should do is look at your monthly expenses and figure out what is essential, and what can be pared back if necessary. As interest rates rise, that obviously becomes more difficult, but also, even more important.
Consider your take-home salary and the effects of any tax benefits that you might be able to use to your advantage. Study your finances carefully to form a strict budget that will guide you to meet your repayment obligations.
Don’t miss any payments
Even though at times it may be difficult to meet every repayment – and some lenders may give you a grace period to skip a payment each year – it is vital you do not miss any payments. All this will do is set you behind schedule and delay the progress you otherwise would be making in repaying your car loan.
Switch to fortnightly repayments
Not every financier will give you this option, however switching to fortnightly repayments could help you repay your loan as much as six months quicker over a five year term. The reason for this is because you would only make 12 payments per year if paying monthly. Instead, 26 fortnightly repayments at half the monthly rate will add up to 13 payments per year.
Round up repayments
When it comes to repaying your loan sooner, every little bit of cash helps. So let’s say your repayments are scheduled for $478 per month, and that unfortunately your financier does not give you the option to switch to fortnightly repayments.
In this situation you may want to consider rounding your repayments up to $500 per month. Doing this once might not make any difference, but if done repeatedly, it will certainly start to get you ahead of your repayment schedule.
Lump sum bonus repayment
Once again, not every lender allows you to make a bonus repayment but if yours does, this could be a sound strategy to repay your loan quicker. You may want to wait until you have a pool of savings accumulated, or you receive a bonus from work. In this case, you’ll be lowering the outstanding balance of the loan by a notable amount and reducing your interest payments.
Finally, with each of the above options make sure that your financier does not have penalties for repaying your loan ‘too early’, or it could defeat the purpose of doing so. You may also want to consider refinancing your loan to terms that are more beneficial for you, although this will be easier if your payment history is solid.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.