How to Pay Off a Car Loan Faster [5 Suggested Methods]


When buying a car, many financing options are available on the market. Many auto loan lenders offer a loan repayment plan that can last for years, but paying your auto loan early can have several benefits. In this article, we will discuss how to pay off a car loan faster, whether that’s a good idea, and how loans work in general. By the end, you will hopefully be more informed about the topic and ready to make the right decisions.

How Do Car Loans Work?

Before learning how to pay them off early, we first need to understand how car loans work. To explain it simply, suppose you wish to buy a car worth $20,000 and give $5000 for the down payment on the car. The remaining balance of $15,000 can be financed through an auto loan. You will have to pay interest on the $15,000 over the term of the loan and make monthly payments which usually comprise of the interest amount as well as a portion of the principal amount. To get a lower car payment and low-interest rates you must have a good credit history. The higher your credit score, the lower your interest rates will be, although you can buy a car with bad credit too.

While many borrowers consider paying off the loan early, many lenders charge a penalty for early payment. It’s important that you ask your lender about early repayment beforehand so you don’t end up making an extra payment on your loan.

Did You Know: A survey found that by 2017, over 100 million Americans had car loans. This number increases every year because it’s now possible to finance a car even with bad credit.

Is Paying Off a Car Loan Early a Good Idea?

Paying any loan off early is a good idea, whether a car or a personal loan. It reduces your liabilities and you end up paying less. Since every loan is set for a certain period of time and you’re charged interest on it, if you pay early, you save a lot of money that you would have paid as interest.

While it is a good idea for the borrower, many lenders do not allow paying off the car loan faster because they end up losing interest money. To make sure this doesn’t happen or to compensate for their losses, lenders charge an early repayment fee.

Thus, early repayment is a good idea only if you don’t incur any additional charges.

Did You Know: Your credit score and credit history are very important when taking out a car loan. A good credit score will most likely eliminate any prepayment penalties.

How to Pay Off a Car Loan Faster?

Now that we’ve understood how car loans work, let’s take a look at a few ways you can pay them off early.

  • Pay Your Monthly Payments Regularly

Before you consider paying your car loan faster, make sure you’re paying your monthly payments on time. If you frequently skip car payments, it can be difficult for you to end the loan term early.

  • Pay Half of the Monthly Payments Biweekly

You can begin paying off your loan early by increasing the monthly payments from once a month to twice a month. This will help you shorten your loan period and will also not affect your cash flow as other options would. Most car dealerships and banks allow this type of prepayment.

  • Round Up

Another way to pay off a car loan early is to increase the amount of payment slightly by paying an additional amount. You can round up the monthly car payment to the nearest $50. For example, if you pay $309 per month, you can increase the amount and start paying $350 per month. This will not reduce the time drastically but should help you pay off your loan at least 1 year earlier.

  • Pay Extra

Adding incremental payments to your loan will help you pay it off faster. There are two ways you can do this.

The first one is paying one large payment per year. This option is suitable if you don’t want to stress your monthly cash flow. You can save up a small amount each month to make a large payment once a year. It will not affect your monthly budget and also enable early payoff of the car loan.

Another method to pay off a car loan faster is to make one large payment over the term of the loan, ideally on the principal amount. This payment will help reduce your principal amount and you will end up paying less interest over the term of the loan. If you cannot make monthly payments or yearly payments, try to save money for at least one large payment over the term of the loan to initiate the pay-off progress.

  • Refinance

Lastly, you can consider the option of car refinancing, or taking another loan to pay off your auto loan. We know this sounds like the opposite of what this article is about since you’re looking for the fastest way to pay off a car, not take another loan, but hear us out.

If you’ve been making regular payments on a car, your credit score will increase, while your debt to income ratio will reduce, all of which reflects positively on your credit report. If you refinance your car loan, you will get better car loan terms with lower interest rates and with no auto loan fee. Most credit unions and banks allow car refinancing on the balance loan amount.

However, make sure you don’t end up taking a loan for a long period of time and you get lower interest rates.

Key Takeaways 

  • Car loans work by paying the principal amount and the interest over the course of a few years.
  • There are many ways you can pay off the car faster, but you must make sure you don’t incur any penalty for the prepayment.
  • You can pay the loan faster by making biweekly payments or rounding up the car debt amount.
  • You can make one large payment once every year or over the course of the loan.
  • Refinancing the auto loan can also help, as it takes into account the car value deprecation as well.


There are many ways to end an auto loan early, such as making biweekly payments, rounding up the monthly payment, or making one large payment every year. You can also make a large payment over the course of the loan or consider refinancing if you have a good credit history.


Is it better to pay principal or interest on a car loan?

If given a choice, it is better to pay the principal on a car loan because a low principal amount will also reduce the interest payments.

Will my car payment go down if I pay extra?

If you pay extra, your car payment will not go down. Instead, your loan term will be shortened.

Is it bad to pay off a car loan early?

If you know how to pay off a car loan faster, it is not a bad idea. In fact, it is a good idea because it will reduce your interest payments over time.



I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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