How To Pay Your Car Loan Off Fast

Another month, another car payment. 

Am I done yet? 

If you’re eager to pay off your auto loan faster, I feel you. That’s why in this piece, I’m going to share seven steps you can take to greatly accelerate the process. In just a few ninja moves, you can pay off your auto loan faster and save hundreds on interest – all without upsetting your lender, triggering fees, or hiking up your monthly payments. 

Let’s explore how to pay off your car loan fast

1. Check your credit score and prepayment penalties

How To Pay Off Your Car Loan Fast - Check your credit

Naturally, one of the best ways to pay off your auto loan faster is to refinance the loan. However, that option will only make sense if your credit score has improved since you took out the loan and your prepayment penalties aren’t too severe. 

Let’s start with your credit score. 

Does your credit score justify a lower interest rate?

Do you remember what your credit score was when you first took out your auto loan? 

If your credit score has improved since then, you may qualify for refinancing with better loan terms. Here are a few reasons it might’ve gone up: 

  1. You’ve been making 100% on-time payments for your credit card, auto loan, and any other types of loans you have out.
  2. You’ve taken out an additional loan since your auto loan and have never missed a payment for that one, either.
  3. It’s simply been a few years since you took out your auto loan, so you’ve accumulated more credit history.

Most online banking dashboards will let you check your credit score for free. If yours doesn’t, you can also check it for free using services like Credit Karma.

Even if your credit score has remained relatively stable, a different lender may still offer you better terms than your current one – that’s especially true if you financed directly with the dealership you bought the car from or if interest rates, in general, have dropped. 

Does your lender have any prepayment penalties?

If you thought paying off your loan early would be doing your lender a favor, you’d be mistaken. In fact, many lenders will charge you a fee called a prepayment penalty for paying off your loan too early. 

It may sound like late-stage capitalism, but prepayment penalties actually make sense. Lenders only profit from interest, so if you pay off your loan early, you’re taking away the revenue you promised to pay when you signed the document. They’re entitled to at least a percentage of that lost revenue. 

That said, prepayment penalties are increasingly less common, as lenders have had to abolish them to stay competitive. Check your loan document and search for the keyword “prepayment” to see if you have one, and make note of it. You’ll use it later in some calculations. 

2. Refinance your loan

Refinancing your loan is one of the best ways to pay off your remaining balance more quickly. It’s also a great option if you’re simply unhappy with your current loan or lender, or just want to save some money. 

If you’ve never refinanced a loan before, the concept is simple: take out a new loan to pay off your old one. 

If you got through section one above and you’re still not sure whether refinancing will make financial sense, you can start noncommittally by just getting some quotes. With Monevo, for example, you can get up to 30 quotes from top lenders in 60 seconds without having to make a hard credit pull

I get this question a lot, so I’ll address it head-on: when personal lenders ask you what your loan is for, just be honest and say you’re refinancing an auto loan. Some folks are tempted to tell a white lie here, hoping it’ll improve their terms. It won’t, and your lender will typically find out what it’s for anyway. 

Earlier I mentioned that if you financed through the dealership you should strongly consider refinancing. That’s simply because dealers rarely offer the best deal, especially when compared to online-only personal lenders. 

Don’t extend your term to get a lower monthly payment

When you choose your new loan terms, remember to keep your eye on the prize. You want to pay off your loan quickly so you save on interest. Don’t be tempted by low monthly payments spread thin across 60- or 72-month terms – there’s a ton of hidden interest and fees baked into those drawn-out payment plans. 

Instead, choose a short term of under 36 months with the highest monthly payments you can afford. You’ll end up saving hundreds, often thousands, of interest this way and will become debt-free sooner. 

3. Make a lump-sum payment

How To Pay Off Your Car Loan Fast - Make a lump-sum payment

Auto loans are one of those rare cases in life where throwing money at the problem is a sensible solution. 

To illustrate the impact of making a lump-sum payment, let’s look at a specific example.

  • Remaining loan amount: $15,000.
  • Term: 48 months.
  • APR: 7%.
  • Monthly payment: ~$360.
  • Total interest paid over 48 months: ~$2,250.

If you can make a 10% lump-sum payment of $1,500 against your remaining loan amount, here’s what happens to your monthly payments: 

  • Loan amount: $15,000.
  • Term: 48 months.
  • APR: 7%.
  • Lump-sum payment: $1,500.
  • Monthly payment: ~$320.
  • Total interest paid over 48 months: ~$2,000.

That $1,500 lump-sum payment will bring your monthly payments down by roughly $40 and will save you $250 on interest.

Alternatively, you could keep your monthly payments the same and pay off your loan sooner, saving even more on interest: 

  • Loan amount: $15,000.
  • Term: 48 months.
  • APR: 7%.
  • Lump-sum payment: $1,500.
  • Monthly payment: ~$360.
  • Months to pay off: 42.
  • Total interest paid over 42 months: ~$1,620.

In this case, keeping your monthly payments the same after the lump-sum payment shaves six months off of your payoff period and saves you an additional ~$400 in interest. That’s quite a difference. For numbers specific to your scenario, be sure to tinker with MU30’s Loan Payoff Calculator

Most, but not all lenders allow for both lump-sum payments and early payoffs, so check your loan terms. But if they do, lump-sum payments are a logical and highly effective way to pay off your loan much earlier. 

Your lump-sum could come in the form of a bonus at work, a government stimulus check, your tax return, or even just a paycheck from your side hustle (which we’ll discuss later). If you don’t need the liquid capital, applying it to your auto loan is an excellent “investment.” 

That all being said, if you’re unable to make a lump-sum payment, not to worry; there are some simple ways we can restructure your payments to save a little time and money, also. 

4. Restructure your payments

If you can’t make lump-sum payments, can you save money by simply changing up your payment schedule? As it turns out, yes!

Switch from monthly to biweekly payments

Monthly payments are messy and expensive. 

To start, the length between monthly payments constantly fluctuates between 28 and 31 days. Plus, your loan payments may fall on different days of the week each month, misaligning with payday and disrupting your savings or investing goals

Lastly, lenders love monthly payments because it means they get to charge you more interest!

If you cut your monthly payment in half and begin paying your lender that amount every two weeks, a few things will happen: 

  • You’ll be able to schedule around your payments more easily.
  • You’ll pay off your loan faster, making the equivalent of 13 monthly payments annually.
  • Because you’re paying off your loan faster, you’ll save a few hundred bucks on interest.

Call me non-patriotic, but switching to biweekly payments is like switching from imperial to metric- it’s just cleaner, faster, and simpler. 

That said, you may prefer to stick with monthly payments due to your compensation schedule or some other factors. All good! Whether you go with biweekly or monthly payments, there’s another restructuring ninja move you can pull to save time, stress, and money. 

Round your payments up to the nearest $50 or $100

Let’s say you’ll make $4,553 this month and your car payment is $359.19. Quick – how much of your paycheck is left over? 

The first benefit to rounding up your monthly car payment to the nearest $50 or $100 is that it makes mental math and budgeting much easier. If you paid $400 flat instead of $359.19, you could more easily remember that you’ll have $4,553 – $400 = $4,153 leftover for rent, investing, and shenanigans (minus taxes, of course).

The second and much bigger benefit to rounding up your car payments is that it’ll slash your payoff period and total interest paid.

To illustrate with math, let’s reexamine our earlier loan example. Here it is without the roundup:

  • Remaining loan amount: $15,000.
  • Term: 48 months.
  • APR: 7%.
  • Monthly payment: $359.12.
  • Total interest paid over 48 months: ~$2,241.12.

And with the roundup:

  • Remaining loan amount: $15,000.
  • Term: 48 months.
  • APR: 7%.
  • Monthly payment: $400.
  • Payoff period: 42 months.
  • Total interest paid over 42 months: ~$1,800.

So a small roundup of $40 each month would save you over $440 in total interest and enable you to pay off your loan six months earlier. 

5. Slash your expenses

How To Pay Off Your Car Loan Fast - Slash your expenses

Normally when you can’t afford something, the classic response is to earn more. I think this is silly; it’s 10 times easier (for most people) to simply spend less

For example, it could take weeks to establish a side hustle that generates an extra $100 each month. Even then, it still requires time and effort.

But to save $100 a month, well, that can take minutes. Here’s how: 

Get a better rate on auto insurance

If you were to ask me the best way to save money in 30 minutes, I’d say it’s to get a better rate on auto insurance. 

On average, Americans pay around $1,400 annually on auto insurance – and young, unmarried people pay even more. Worse still, insurance carriers overcharge loyal customers simply because they can

That’s why I vehemently recommend that all young people shop around for better auto insurance rates every six months. If you use an aggregator like Policygenius, you can see dozens of competing quotes in minutes. 

You don’t always have to switch, either – you can bring your lowest offer to your existing provider and simply ask them to match it. If they won’t play ball, ask how else you can save money. Together with your rep you’ll update your demographic information, consider possible discounts, and explore every possible avenue for saving on premiums. 

Between finding a better quote and finding discounts with your current provider, there’s a high chance you’ll end up saving hundreds, even over $1,000, on your auto insurance premiums this year. Once you’ve secured a better rate, apply your savings to your auto loan!

Switch to a cheaper mobile phone plan

Perhaps the second-best way for young people to save money is to switch to a more affordable mobile phone plan. 

Big telecom companies will convince you that you need an unlimited data plan just to survive, and that if you switch, you’ll need to buy a new phone. Neither is true; SIM cards cost $2, and your new provider can jailbreak your phone for you. 

As for data, unless you’re an Instagram influencer who constantly uploads 4K videos, you can probably get by with a 5GB prepaid cell plan. 

Cancel (or share) some subscriptions

Paying $15 a month for a streaming service may not sound like much, but those subscriptions tend to add up quickly. A 2018 study by WMG found that 84% of Americans underestimate how much their monthly subscriptions are costing them, paying $80 a month on average – nearly $1,000 a year. 

If you can cancel or share just half of those subscriptions, you’ll save around $500 per year – a big lump sum to apply to your auto loan. Consider canceling all of your subscriptions so it becomes apparent which ones you miss. Then, share a family plan with a friend to save even more money!

Now that you’ve found some ways to save money, let’s complete the one-two-punch and explore ways to earn a little extra, too. 

Related: Cut The Cord Without Getting Bored: Find The Best Streaming Service For You

While spending less is an easy way to save money, sometimes it’s just not possible. So, taking on a side hustle is an excellent way to earn a little extra capital to apply to your auto loan. Keep in mind that every dollar you earn gets multiplied since you’re using it to save on interest!

Here are some simple side gigs for earning easy money. 

Babysit, pet sit, or house sit in your neighborhood

Taking care of a neighbor’s child, pet, or simply their home while they’re away is easy money. 

Babysitters can charge $20 per hour, which is triple the minimum wage. You can justify charging even more (and stand out among the competition) by becoming a Red Cross certified babysitter

If you like cats and dogs, pet sitting can be a joyful way to earn some easy cash also. Market rates vary, but you can charge $25 per visit or roughly $300 per week for taking care of someone’s fur children. 

Lastly, if you can get it, housesitting is an awesome gig. Typically more common in wealthy neighborhoods, you can get paid $50 – $100 a night just to stay in someone’s house, water their plants, check the alarm, etc. 

You can market all three services on your local neighborhood Nextdoor page or Facebook Marketplace. These jobs also tend to pay quickly, so you can chip away at your loan faster and save even more on interest. 

Sell some stuff

Do you have an old flatscreen you never use? An Xbox 360 you never play? Designer clothes you haven’t worn in years? 

Your place may be filled with stuff that’s not worth much to you, but worth $50 – $100 to someone – and every $50 is a nice dent in your auto loan. 

You can “appraise” your stuff by searching for it on eBay and filtering for “sold” results. But don’t list your items on eBay yet, because shipping’s a pain and eBay charges a 10% commission. Start with Facebook Marketplace, where you can list everything at once as a “moving out sale” and shoppers will still find items based on your keywords in the listing. 

Just be sure to follow best practices for safe in-person sales!

Earn money online

Lastly, you can earn a small trickle of cash by taking surveys and playing games online. 

Sites like Swagbucks and Mistplay are legitimate, but to set expectations, you won’t earn big paydays. Sites like these generate around $2-$3 per hour, so they’re no substitute for babysitting or even a minimum wage role. However, if you find yourself messing around on your phone for hours a day during long commutes or otherwise, might as well earn some auto loan money while you’re doing it!

Related: Best Game Apps To Make Money Fast

7. Sell or trade-in your car 

How To Pay Off Your Car Loan Fast - Sell of trade-in your car

Looking for a big cash influx to pay off your auto loan? Why not sell your car

It may sound like a bit of a mind twister, but selling your car to pay off your auto loan can actually be a sensible strategy. It can clear your debt and leave you with some profit to pay off other debt, invest, or put towards a new car. 

Selling your car to pay off your loan makes the most sense if the resale value of the car vastly exceeds your remaining loan amount. For example, if you owe $6,000 on the car and the car’s resale value is $16,000, you might rather have the $10,000 in cash than to keep paying off the car. 

But if you owe $6,000 on the car and the car’s resale value is just $5,000, you’re “upside-down” or “underwater” on the loan – meaning even if you sell it, you still owe money. 

If you’re income-dependent on your car, you certainly don’t want to be both in debt and carless, so selling wouldn’t make as much sense. 

In the former example, let’s say you want to sell in order to pocket that $10,000. Selling a car you owe money on requires a few extra steps – you’ll first need to determine your lender’s “payoff amount,” i.e. the cash amount you’ll have to pay to get the title. Your lender may also require you and the buyer to complete the sale at a physical bank location to ensure a smooth transition of ownership. 

It’s not uncommon for folks to sell cars they owe money on, so as long as you’re prepared with clear next steps for the buyer, they shouldn’t be intimidated. 

If you need to replace your car, should you pay cash for a cheap car or finance a fancy new car? 

Consider a trade-in for a cheaper (and better) car

Perhaps the #1 most ninja move you can make with a financed vehicle is to: 

  1. Sell it for a profit.
  2. Pay off your old loan.
  3. Use the difference to pay cash for a better car.

How can you buy a better car with less money? Well, consider that “cheaper” doesn’t have to mean “worse” in the car world

In most ways, a 10-year-old Lexus IS 250 is a better car than a brand new Toyota Corolla, and yet the Lexus is $8,000 cheaper. It’s also cheaper to insure since it’s lower value, and despite its age, even more reliable since Lexuses are built to a higher standard of quality than Toyotas. 

So don’t assume that trading in for something cheaper means a downgrade – you can easily “upgrade” by playing your cards right, taking your time, and doing your research.

Disclaimer: paying off an auto loan could help (or hurt) your credit

Allow me to be a wet blanket for a second and point out one of the drawbacks to paying off your auto loan quickly.  

Paying off your auto loan, early or on time, can actually hurt your credit.

Sounds crazy, but it’s just math. 10% of your credit score is based on your “credit mix,” i.e. the number and variety of loans you have out – so when you remove an auto loan from the equation, your mix goes down, and thus your overall score. 

Paying off a loan may result in a dip of 5-15 points or so, and it typically rebounds within a couple of months. But it’s worth keeping this in mind if you were intending to take out a much bigger loan just after paying off your car – like a mortgage. You may want to bake in some time for your credit score to heal.

Now, paying off an auto loan can sometimes help your credit score by improving your debt-to-income ratio (DTI), but it’s better to hope for the best and plan for the worst. 


Here’s a recap of the steps you can take to pay off your car loan fast:

  1. Check your credit score and prepayment penalties.
  2. Refinance your loan.
  3. Make a lump-sum payment.
  4. Restructure your payments.
  5. Slash your expenses.
  6. Earn extra income.
  7. Sell or trade your car.

If you choose to keep your car, methods two through six can greatly accelerate your payoff period and save you gobs of interest. And hey – once you save that money, why not invest it to multiply it further?

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