a set of car keys on top of a calculator representing how to pay off a car loan faster


Getting a new car loan can be exciting and daunting all at the same time. In most cases, you’re committing to making payments for several years. But, it doesn’t have to be a scary commitment if you have a plan to pay it off strategically!

Paying over the course of several years is a great way to build your credit history and invest in your financial future. Every time you make an on-time payment, you’re investing in your future borrowing opportunities. A consistent on-time payment history will assist you in building your credit history and your credit score so that you can qualify for lower rates and better borrowing terms down the road.

Still, you can strategically make your car loan disappear speedily. When you pay your car loan off faster, you’ll save cash and time. Here are some tried-and-true tips to take your payoff plan to the next level.

1. Get a great rate

The first quick payoff tip starts before you even drive the car off the lot. The interest rate for your car loan can fluctuate depending on the lender. Do some research to get the best rate possible and set yourself up for success. Rate shopping is when you apply with several different lenders to see who can offer you the best rate.

When you apply for a loan at several different lenders, each will need to check your credit history. This is typically referred to as a credit pull or a credit inquiry. It’s a common misconception that rate shopping is destined to hurt your credit score. Similar credit inquiries within a short time frame are normally counted as a single inquiry. So, get the best interest rate that you can by doing some rate shopping!

2. Check the terms

Keep in mind that some lenders actually charge you to pay your loan off early. This is called a prepayment penalty. Remember to consider prepayment penalties and other loan terms when rate shopping. Ask directly if prepayment penalties are something that the lender enforces. This can help you make the best financial decision for your early payoff goals.

3. Make weekly & biweekly payments

When you make payments more frequently, you’ll ultimately pay less in interest.

Auto loan interest is often accrued daily, which is referred to as per diem interest. A higher loan balance means you’re paying more in per diem interest every day. When you make payments more frequently, your principal loan balance will decrease faster. This shrinks your per diem interest. For this reason, some people decide to pay their loans more frequently.

Think of it this way—if you make your payments more often, you’ll leave less time for interest to accrue between payments. So, as your balance decreases, the amount of daily interest that you’re paying decreases as well.

4. Consider large lump-sum payments

If you’re lucky, you might get a chunk of cash along the way. Common sources of large sums are tax refunds, bonuses, inheritances, or gifts. When you get a chunk of cash, it can be tempting to spend it on big things that you’ve been wanting. But, remember that lump sum payments can be a huge help with achieving your loan payoff goals.

Putting a lump sum toward your car loan can significantly reduce the total balance of your loan. So, per diem interest, or interest accrued daily, will also be less. This helps you pay off your car loan faster and save money.

5. Use pay raises wisely

When you get a pay raise, it can be easy to succumb to lifestyle inflation. Lifestyle inflation is just a fancy way to describe how we tend to spend even more money when we get a raise, instead of using the extra to invest in future financial success.

Don’t let lifestyle inflation happen to you! Take that extra cash and pay off your car loan faster with it. Think of it as an investment in your future budget wiggle room. A bigger salary now – used wisely – can mean bigger savings in your future pocket.

6. Reduce unnecessary expenses

How many little things do you pay for that you don’t really use? Streaming services, subscriptions, memberships? Many people leave these things on automatic withdrawal indefinitely. Maybe you buy lunch out more than you should or overspend with online shopping. Unnecessary expenses come in many forms. Your secret payoff weapon is to give every dollar a purpose!

Consider kicking unnecessary expenses to the curb and put the extra cash toward your auto loan. Ultimately, the sooner you pay off your car loan, the sooner you will have extra money in your monthly budget.

7. Look into refinancing

Some borrowers think that they are stuck once they pick a lender. But, you can switch things up later to make your payoff plan work better for you.

Refinancing can be a great solution for you to save some cash if you didn’t love the terms of your original loan. Unsatisfactory terms can sometimes be due to limited or negative credit history. After you’ve made on-time payments on your loan for some time – typically six months – you can explore refinancing the loan. When you refinance your loan, it can provide you with a lower payment and interest rate.

Small changes can add up to big rewards. A small step in the right direction can be the biggest step you’ll ever take. Keep these tips in your back pocket and you’ll have your car paid off in no time!

Remember, your credit union’s mission is to help you succeed financially. We’re here if you need help figuring out how to pay your car loan off faster and can also help you decide if refinancing is the right solution for you.

Should You Refinance Your Car Loan?