How can I pay off my high-interest car loan more quickly?
I got a 66-month, $16,000 loan with an annual interest rate of 18% on a $25,500 car. I recently landed a better-paying job and I could easily double my monthly payment. Is there a way I can pay off this loan more quickly?
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Answered on Mar 12, 2021
Unless you have a poor credit score, 18% on a car loan is nothing short of outrageous. So regardless of whether you now have a better-paying job, your first solution is to refinance the loan. Car loans from reputable lenders will rarely go above five percent to six percent for a new car, and a maximum of about nine percent for a used car, even for the longest terms (typically 72 to 84 months). This will save you thousands over the life of the loan. Just make sure that you’re comfortable with the monthly payment and budget for maintenance, insurance, and other car-related expenses. In the future, watch out for unreputable lenders such as used car lots that offer financing.
If you have poor credit, you may not be able to refinance. In this scenario, you’re stuck with the car. To pay this car loan off more quickly, the best idea isn’t to pay double necessarily. Instead, continue to make your monthly payment. Any extra money you have to pay down the loan is ideal, but make certain that you’re putting it toward the principal and not just making a general payment.
By paying down the principal, you shrink the life of the loan and cut the amount of interest owed over time. To ensure that your money goes to both the monthly amount and the principal, make two separate payments. This will make it easier to track where they go and when they’re received.
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