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Taking out a car loan is fairly common, and many require monthly payments for five years or longer. However, if you want to pay off your car loan early and reduce the amount of interest you’ll pay over the life of the loan, here are a few tips to help you find extra funds to do so.
Make Extra Payments
Since most repayment plans for auto loans follow a monthly schedule, try to make an occasional extra payment, but apply it to just the principal rather than the complete payment of principal and interest, which will reduce the amount owed quicker. Ask the lender about the best way to do this so you can pay extra on a regular basis or just at times when you have spare cash to be used for this purpose.
Apply Unexpected Income
Whenever you receive unplanned income, such as cash gifts for birthdays or holidays, a job bonus, a pay raise, an inheritance, a rebate, or an income tax return, apply it to the outstanding loan balance. Most of us receive unexpected income during the year, and applying it to your car loan can whittle down the
balance fairly quickly.
Tap Savings or Investments
If you own a stock portfolio that earns dividends, you may want to apply those to the car loan if the loan interest rate is higher than the dividend rate. You can also borrow from your savings account if the interest rate is low, or consider taking out a home equity line of credit on your home, as these often come with low introductory interest rates.
Sell Unneeded Items
Advertise on eBay or Amazon some possessions that you no longer need but others may want. Books, clothing, furniture, toys, and even car parts may attract buyers who will pay for your items. Use the cash income to pay off your car loan early. You can also sell things like a second car you don’t really need, a boat, a motorcycle, or bicycles, just to name a few things people often purchase. Garage sales and yard sales can also generate income that can be applied to your car loan.
Paying off the vehicle loan early is a good way to avoid paying extended interest over several years’ time. You will also be able to get free of the monthly car payment. Start using extra funds to pay the loan off sooner.
Anita Ginsberg is a freelance writer from Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing. You can follow her on Twitter @anitaginsburg
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