The first step in getting started is looking over your loan agreement. There are many lenders that don't allow early settlement or even extra payments. In the event that they do, in many cases, they also charge a penalty fee. So, if you don't have to pay a fee, don't mind paying the fee or if the interest you'll have to pay in the long run is higher than the fee, then you can go forward with paying off your car loan as soon as you can.
Why should you try to pay off your car loan as soon as you can?
Well, besides the fact that you'll be out of debt, another good reason is that loans are quite costly. Also, the majority of vehicles tend to depreciate over time and it will take quite a long period of time before the value of the vehicle would be much more than the remaining balance on your car loan. In the event that you get into an accident and the vehicle is written off, you will still have to pay off the remaining loan amount to your bank or lender.
In the end, you could pay hundreds even thousands of pounds due to your loan's interest. By paying off your loan, you will reduce the loan period and lower how much interest you'd pay in the long run.
1. Refinance
You should always be kept aware of what’s going on in the financial markets. This is because there will likely be periods where the interest rates would reduce and during these times, you can actually refinance your vehicle. This can help you to get a much lower interest rate and even reduce the loan period.
2. Pay More Every Month
Next, if you're allowed to increase your monthly payments, you should consider doing so. For example, if your current vehicle loan is £300 per month, then you should consider if you can afford to pay more. Once you determine the increased amount that you can comfortably afford, you re-adjust your loan. By simply paying an extra £50 per month, you can actually shave off 2 months every year off of your loan period.
Another example to illustrate this is if you have a loan for £12,500 and you currently pay £259.48 every month and you still have 2.5 years to pay off your loan, then you actually reduce your loan term by as much as 5 months by paying an additional £50 every month.
3. Lump Sum
If you have some extra money, you can consider paying off a lump sum on your vehicle loan to reduce your overall term. So, based on the previous example, if you can afford to pay off a lump sum of £2,000, you can actually reduce your overall loan term by as much as a year.
4. Rounding Up Payments
Lastly, you can try to round up your payments every month to reduce the length of your loan. For example, you can round up each monthly payment to the closest £10. If you find ways to increase your monthly income, you can even round up your payments to the nearest £100. This is a very easy way to reduce your loan term and it is very simple to apply to your budget.
As always look carefully into any car finance agreements and check if there are any additional final payment amounts.
*Collaborative post
4. Rounding Up Payments
Lastly, you can try to round up your payments every month to reduce the length of your loan. For example, you can round up each monthly payment to the closest £10. If you find ways to increase your monthly income, you can even round up your payments to the nearest £100. This is a very easy way to reduce your loan term and it is very simple to apply to your budget.
As always look carefully into any car finance agreements and check if there are any additional final payment amounts.
*Collaborative post
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