Refinance to Lower Interest Rate
Oct 16, 2022 By Susan Kelly

Since you bought that car, has there been an increase in the credit score you use? If it has, refinancing to lower interest rate is an efficient method to pay off your car loan early and save money. A decrease in your interest rate will result in a smaller monthly payment; nevertheless, if you continue to make payments that are more than the monthly payment, you will make significant progress toward paying off your debt. Before you proceed with the refinancing, you need to:

  • Be aware of your current interest rate.
  • Check the rates offered by your local credit union, bank, or internet finance company to see if you can get a better deal with a shorter term and a cheaper interest rate.

If you opt to extend the period of your loan, lowering your interest rate will result in lower total payments; however, this does not guarantee that you will pay off your debt any faster. If you have three years remaining on a car loan with an interest rate of 5% and you refinance to a five-year loan with an interest rate of 2.5%, for example, you have prolonged your loan by two years unless you opt to pay off the loan early. Your payment will be reduced as a result, and the money you save may be used to pay down other, higher-interest debt. Consider raising the monthly payment amount if you decide to prolong the duration of your auto loan to pay it off more quickly.

Pay Car Loan Biweekly

Take the amount you pay for your car each month, split it by two, and then make payments equal to that amount every 2 weeks. If pay every 2 weeks rather than the standard once a month, you will have made half of your payment 26 times instead of the usual 12 times yearly. You will be required to make an additional payment each year.

Another advantage of making payments every two weeks is that, depending on how your loan provider credits your payments, you can wind up paying less interest overall for the duration of the loan if you do so. If you pay the minimum amount due every two weeks instead of once a month, your balance will continue to go down, resulting in less interest being levied on the amount you still owe. Although completing this step alone will not significantly speed up the process of paying off your loan, remember that every little bit helps.

Pay More on Your Extra Pay Periods

You could get an additional payment once or twice a year, depending on how your payment schedule is set up. If you are paid weekly, you will typically get four paychecks each month. You will have four months out of the year to earn five paychecks.

If you are paid biweekly, you will normally have two paychecks to bring home at the end of each month. You will get your regular monthly monthly payment for two months out of the year. These additional wages are just what you need to spend toward paying off your car loan.

If you come into "extra" or unexpected money, this is something to keep in mind. For instance, wage hikes provide a wonderful possibility to bring down overall debt levels. A salary rise will result in more funds being added to your paycheck every month; these funds may then be used against the principal of your auto loan. There is a good possibility that you won't be late for it.

Make Snowball Debt Payments

This strategy may be used for any debt, including payments on a car loan. You should prioritize paying off the debt that has the smallest sum first and use whatever additional funds you have to do so. Then, move your payment toward that debt to the account with the next lowest balance, using the money you were previously paying toward that obligation. When you have finished paying that one off, put the amount that you were paying toward that loan toward the payment of the following obligation until you have paid off all of your debt. The snowball method of paying off debt works well. Instead of beginning with the loan with the smallest sum, some individuals favor working their way up to the one with the highest interest rate.