After a house, a vehicle is a motor car is the next major expenditure for many Australian households. According to the Australian Automobile Association, many households use over $20000 annually to pay off their Australian Car Finance.
A car is necessary for most estates in Australia due to the public transport network’s poor state.
Seventy percent of car owners borrow money to purchase their vehicles, and let’s face it; car loans can be an uphill task. On average, a car loan can take over 60 months to pay, meaning a whole five years. That is too much interest. These five easy tips can help you clear your car loan faster, save on the high interest, fuel, and insurance. The final goal is to achieve your saving goals and have enough money in your bank account.
1. Pay half your monthly payment bi-weekly.
This may sound counterproductive on the surface, but deep into perspective, it makes perfect sense.
If you make payments every two weeks, that will amount to 12 full payments instead of 13 if you were to make one monthly payment. You will only save a small amount in interest, but a 60-month loan will be cleared in 54 months. If your lender can accept this plan, then you should definitely go for it.
2. Thou shall not skip payments
Some lenders may let you get away with skipping a payment on a few occasions. Be prudent and avoid this temptation. This will lengthen your loan payment period and, ultimately, your interest. Skipping payments may attract other penalties that may not be friendly to your financial plan in the near and far future. For the shrewd lenders skipping payments may mean additional fines on your loan balance and poor credit score with the credit regulators. Whatever your repayment plan may be, skipping is a no.
3. Renegotiate the terms
Once you take a loan, you can negotiate a new monthly payment and deadline. This is only advisable if you seek to pay a less monthly payment or helps pay off your car loan faster. Otherwise, refinancing can be counter-productive. No prudent borrower would seek to lower the monthly payment and end up paying longer and a lot more interest while the principal remains the same.
The ultimate purpose of refinancing is not only to reduce loan payments but also to leave more money in your bank account geared to your savings. Refinancing can also entail renegotiating your car insurance policy, which is another major expense that could affect your real-time savings. Changing insurers for the comprehensive car policy could help save hundreds to thousands of dollars.
4. Always Check Your Rate
Your auto loan may be large, but it is unlikely because the loan has a very high-interest rate. That usually happens to credit cards whose rate is actually thrice more than the normal car loan rate. If you want to save most of your money and eventually improve your credit score, you should prioritize paying off your credit cards.
5. Round-Up Strategy
Instead of paying what is agreed on paper, you can round off your payments to the nearest $50 to pay more quickly. If you borrowed $10000 with 60-month repayment at a 10% interest rate, your monthly payment would be $212. With that monthly payment, your 60-month loan interest will add up to $2748. Alternatively, if you consider rounding up to $250 monthly, you will clear your car loan in 47 months and pay a total of $2214 in interest. That will save you a whole $533.
The round-up way can also be done on annual terms. Say you borrowed the same $10000 at 10% for 60 months. An additional $500 yearly payment will help you pay the loan in 49 months. The total interest paid in 60 months will be $2279, thus saving $469.
Cars are very important in our daily living. They not only make our movement efficient but cost-effective. Therefore, if you are a car owner on loan, hope this has been your guide to help clear the auto loan faster, save on interest and other expenses as well as save some cash in your bank account.
Autobiography
Eric Reyes is a passionate thought leader having been featured in 50 distinguished online and offline platforms. His passion and knowledge in Finance and Business made him a sought after contributor providing valuable insights to his readers. You can find him reading a book and discussing current events in his spare time.
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