Congratulations, you’ve bought a new car! Now the question is, what is the best way to pay for the loan you had to take out to get it? The answer to that question depends on your financial situation. However, the quicker you can pay off the loan, the better you will be. As long as you have a balance on your loan, it will be racking up interest charges and costing you more and more money.
One way to repay your car loan is in one lump sum payment. Has your tax return come in? Has some other large sum of money come your way? Use that to pay off your car loan. While not a common situation, if you come across the resources to be able to pay off your loan entirely, you would be better off in almost any scenario for paying it off. However, before you write that check, make sure that there aren’t any penalties or fees for paying off the loan early. If there are, see if you can negotiate them down, or eliminate them entirely.
One of many car loan repayment options is to talk to your loan company and see if you can make extra payments on the loan. The quickest way to save money on any loan, short of paying it off completely, is to cut down the balance on the principle. The principle is the original loan value before interest and other fees are added on. However, like the lump sum payment, make sure that there aren’t any penalties that you would have to pay for early payments. Also, when making extra payments, make sure you specify that you would like the payment applied to the principal only, not the interest.
Lastly, if you can’t pay off a loan early, refinancing your car loan is another method you can use in paying off your car loan. At first glance, it may not appear to be a good idea to pay one loan off with another. However, if you can get a loan with a significantly lower interest rate, you could save quite a lot of money in the long term. Also, you could pay off your loan quicker by using the savings you would have from the lower interest to shorten the length of the loan, paying it off in only three years instead of four.
No matter which option you choose, try to pay off your loan as quickly as you can. You’ll save money in the long term, and there is nothing like the feeling of driving in a car that is completely yours.