Every car depreciates over time and anyone who takes a car loan should avoid getting stuck with owing more than the car’s value. Your financial position can be greatly improved when you repay a car loan faster. It is important to consider changing your loan repayment methods in order to quickly clear previous debts and pave the way for accessing future loans.
Statistics Canada reveals a shocking fact that the amount of debt for each dollar of disposable income that the average Canadian owes is $1.50. In Canada, the concept of loan acquisition has been deeply engrained in families, facilitating regular transactions between moneylenders and borrowers.
Many Canadians have common views on assets they deem financially necessary to maintain a comfortable lifestyle and this often includes home ownership, academic degrees, vacation properties, as well as car loans in Canada.
- In terms of cost, the biggest investment a person can make is a mortgage.
- Following closely behind is the purchase of cars and other kinds of vehicles.
Below are some tips on how to quickly repay your car loan. Keep them in mind when signing a car loan contract.
Raise Your Monthly Installment Payments
When you use this technique, you’ll be able to pay off your car loan much faster. Raise the amount you repay monthly on your loan. Within a short time, you’ll realize that the total term for your loan has been drastically reduced.
Also, rather than repaying your loan every month, consider making payments every two weeks. Bi-weekly payments can lower your total loan term substantially as it reduces the rate that interest on your loan accumulates.
Additionally, while repaying your car loan, if you receive some extra money, consider using part of it to repay your car loan.
Once you’ve repaid a large chunk of the car loan, you can then increase your monthly loan payments to repay your car loan even faster.
Loan repayment agreements often give room for flexibility and this can be utilized by a loan borrower. Contact your moneylender to find out if you have certain repayment options such as making a lump-sum payment, raising the amount paid monthly, or making bi-weekly payments.
Analyze your Present Balance
Firstly, analyze the specifics of your car loan agreement to see if you can pay a higher sum every month. This is because some loan contracts include a payoff payment clause that requires that you make a fixed sum payment every month.
Therefore, before agreeing to a car loan, check with your lender to find out if there’s a charge for paying off the loan early.
Your interest rate could be greatly lowered when you make a higher loan payment. However, review your balance to know the percentage of your payment that is actually paying off your loan principal, as well as the amount going towards loan interest and fees.
Should you experience trouble paying your monthly car loan payments, your main focus should be to first pay off the loan with the higher interest rate. For instance, if you have a credit card loan along with your car loan, pay off your credit card loan first as the interest rate is often about three times higher than that of a car loan.
If your credit card debt is high, make the repayment of your credit card your major priority. You can also make some monetary gains and improve your credit score when you analyze and review the contract details of your loan.
Another thing that could help you pay off your auto loan is to get a part-time job for extra income.
Equifax reveals that many Canadians are financially delinquent and bankrupt. Therefore, it is imperative that you review the fine print of your car loan agreement and ensure you are financially capable of repaying the loan before you apply for it.
Downsize Your Car
Sometimes, people have trouble repaying their auto loan because they spend most of their money on car expenses. The loan itself may be a challenge to pay off and this could be made worse if the car has high maintenance costs.
If you find yourself in this situation, consider changing your car and getting one that’s much easier on the pocket. If your taste is only for attractive cars, you can still get a model that is safe, affordable and aesthetically appealing. When you trade in your car for a less expensive one, your car loan will reduce drastically, and you can then pay off your credit and auto loan at a quicker rate.
Try any or all of the strategies above to repay your car loan faster.
You might be interested in reading, “Experts Agree: You Should Lease Your Next Car“.