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How to Pay Off Your Car Faster and Be Debt-Free Sooner

Paying off your car early is a great feat. Find out how to do it and if it’s the right path for you.

Justin Cupler

Contributing Writer at Tally

April 28, 2022

After leaving the dealership with a new or used car, you generally also leave with an auto loan from a bank or credit union. These loans can be upward of 84 months, putting you on a long path that can add up to significant interest charges.

Paying your car off early can help reduce these charges and streamline your finances. So, you’re likely wondering how to pay off a car faster and if it’s the most financially sound decision. We cover that and more below.

How to pay off your car faster

As with any debt that charges interest, the sooner you pay it off, the more you save on interest. Using these repayment methods, you can pay off your car faster and get one step closer to being debt-free.

Make biweekly payments

Making biweekly payments is a common method to pay off an installment loan. If you make one-half of your minimum payment every two weeks, ensuring you satisfy at least the minimum monthly payment by the due date, you’ll make one additional payment per year.

For example, if you have a 60-month, $30,000 auto loan amount with a 4.5% interest rate, your monthly payment would be $559.29 per month, or $279.65 every two weeks. If you used the biweekly method on this loan, you’d pay it off in four years and seven months instead of five years.

Round up payments

You can also round up your car payment to the nearest $50 for a slight boost to your pay-off speed. Using the $30,000 loan example from above, you’d round up your monthly payment to $600, meaning you’d pay an extra $40.71 per month.

You’d again pay off your loan in four years and seven months instead of five years.

Redirect income tax refunds

Your tax refund check may go to fun things, like a new phone or a family vacation. But you can make significant progress if you can forgo those expenses and apply that lump sum to your car loan every year.

Using the $30,000 loan example from above, assume you get a roughly $1,500 income tax refund check every year. If you apply that refund as an extra payment to your car loan each year, you’d pay it off about 11 months earlier.

Use your bonus

If you get a yearly bonus at work, it’s tempting to spend it on a new television or something else you’ve always wanted. If you can resist that temptation and funnel it to your auto loan, you can pay it off much quicker.

Let’s say you get a $3,000 bonus check every year and apply this large payment toward the $30,000 loan example from above. You would pay off your car loan one year and five months earlier than expected.

Pay with your raises

If you get a raise at work, make that extra cash work for you. Instead of increasing your standard of living with that extra money, funnel the extra cash you earn each month to your monthly car loan payment.

If you consistently get a yearly raise, this can help you pay off your car much faster. The best part is, since you’re paying with your raise, putting extra money toward your car will not impact your current standard of living.


Other considerations to make before paying off your car faster

Before paying off your car early, there are a few things to consider. Here are some common scenarios you’ll want to look into before paying off your car loan early.

Prepayment penalties

Though they are becoming less common, early payoff penalties may still exist on an auto loan. Check your loan terms to see if there is any penalty for paying it off before the end of the loan term.

If you can’t find your loan documents, call your lender and ask if it charges a penalty for paying off your auto loan early.

If there is a penalty for paying off your car loan early, you’ll want to make sure you pay off the loan after the penalty expires. You can find the terms of the prepayment penalty in your loan disclosures.

Possible refinancing

While it’s not as common, you can refinance a car the same way you can a house. If you can refinance into a loan with a significantly lower interest rate, you may be able to pay it off even faster, as more of your payment will apply to the principal. This makes any extra payments you can afford to make even more impactful.

Keep in mind that you’ll want to compare the cost of refinancing to the potential savings, as there may be origination fees and other costs that negate your savings.

It’s best to attempt a refinance only if you’ve had significant increases to your credit score since getting the loan or if interest rates have fallen dramatically.

Paying off your car versus your credit cards

When you have multiple debts, it can be a little confusing as to which one to pay off first. In the grand scheme of things, it’s all about interest charges. The less interest you pay, the better it is for your finances. 

The median credit card interest rate is just over 19%, whereas most car loans are 16% or lower. The only exception is someone in the deep-subprime level — meaning a credit score below a 500. Interest rates for credit scores under 500 average as high as 19.87%.

This means in nearly every case, it’s more beneficial to pay off your credit cards with high interest rates first, then work on the auto loan.

A great way to prioritize interest rates and streamline your debt-repayment process is to use the debt avalanche repayment method. You channel all your extra cash to the debt with the highest interest rate and pay the minimum monthly payments on the rest of your debts. Once that debt is paid off, channel all your extra money to the debt with the next-highest interest rate. Repeat this process until all your debts, including your auto loan balance, are paid off.

You can also include any personal loans, student loans or any other debt in the debt avalanche process.

Pay off your car faster to save time and money

When wondering how to pay off your car faster, there are multiple ways to approach it. You can set up a biweekly payment plan, channel your tax refunds or bonus checks to it or even apply any raises you get to your car payment.

While paying off your car early is a tremendous feeling, there are things to consider before doing so, such as prepayment penalties and other high-interest debt you may have.

If credit cards are among the other high-interest debt you’re dealing with, the Tally† credit card debt repayment app can help. Our app helps you manage your credit card payments, and Tally offers a lower-interest personal line of credit, allowing you to efficiently pay off higher-interest credit cards.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.