7 Tips to Pay Off Car Loans Faster

Want to save money and own your car sooner? Paying off your car loan early can help you reduce interest costs, improve your financial flexibility, and free up cash for other priorities. Here’s how you can do it:

• Refinance for a lower interest rate: If your credit score has improved or rates have dropped, refinancing can save you money and shorten your loan term.

• Switch to biweekly payments: Paying half your monthly amount every two weeks adds an extra payment each year.

• Round up your payments: Add $50–$100 to each payment to reduce interest and loan length.

• Use extra income: Tax refunds, bonuses, or gifts can go directly toward your loan’s principal.

• Cancel unnecessary add-ons: Remove extras like GAP insurance or warranties to reduce your loan balance.

• Try the debt snowball or avalanche method: Focus on paying off either the smallest balance or the highest-interest debt first.

• Explore refinancing options: Look for flexible terms to better match your financial goals.

Quick Tip:

Even small changes can make a big difference. For example, adding $100 to a $30,000 loan at 7% interest can save you $420 in interest and cut six months off your term. Start by reviewing your loan terms and budget to decide which strategy works best for you.

6 Tips to pay off your car loan faster.

1. Refinance Your Car Loan for Better Terms

Refinancing your car loan involves replacing your current loan with a new one that offers improved terms - such as a lower interest rate, a different payment schedule, or both. This can help lower the total cost of your loan and even allow you to pay it off faster.

"The goal of refinancing is to get a new auto loan with a lower interest rate." - Navy Federal Credit Union [2]

Even a small rate reduction - say 2% or 3% - can make a noticeable difference in the total interest you pay. If your credit score has improved or market interest rates have dropped since you first financed your car, refinancing could be a smart choice.

Choosing a shorter loan term is another option to consider. While it might increase your monthly payments, it can significantly reduce the amount of interest paid over the life of the loan. For instance, switching from a 60-month loan to a 48-month one means you'll pay off the loan a year earlier, potentially saving hundreds or even thousands of dollars.

Before diving into refinancing, gather all the details about your current loan. This includes your monthly payment, APR, remaining balance, and payoff amount. It’s also helpful to check your car’s current value using tools like Kelley Blue Book or Edmunds.com [3]. Don’t forget to check your credit score - an improved score can often unlock better rates. Being prepared with this information will make it easier to compare refinancing offers.

Take the time to shop around with different lenders. Many offer pre-qualification, which gives you an idea of your potential rates without affecting your credit score. You can also use an auto loan refinance calculator to estimate how much you could save. Be mindful of additional fees, such as prepayment penalties, lien holder fees, or state re-registration costs, as these can eat into your savings. Carefully calculating the total costs will help you decide if refinancing is worth it.

Keep in mind that some lenders may have restrictions based on your car’s age, mileage, or the loan amount. However, the application process is usually straightforward, and many lenders provide quick decisions after you submit the necessary documents.

2. Switch to a Biweekly Payment Schedule

Switching to a biweekly payment schedule means splitting your monthly payment into two smaller payments every two weeks. Over the course of a year, this adds up to 26 half-payments, or 13 full payments - one more than the standard 12 monthly payments. That extra payment goes directly toward reducing your loan's principal balance, which can help lower the total interest you pay and shorten the length of your loan.

"Some benefits include paying off a loan faster and fewer payments in total." - Tom Holgate, executive vice president of auto finance and insurance at Way.com [4]

This strategy could lead to noticeable savings. For example, a $20,000 loan with a 5.5% interest rate over 60 months could save you around $289 in interest. A $28,000 loan at 7.5% might save over $500 and shorten the loan term by five months [4][5].

Before you make the switch, confirm with your lender that any extra payments will go toward your principal, not future interest charges [1]. Some lenders may charge a setup fee for biweekly payment programs, so it’s a good idea to ask about any additional costs upfront [4][7]. The effectiveness of this method largely depends on how your loan calculates interest.

Biweekly payments are most effective for simple interest loans, where interest accrues daily. For loans with pre-computed interest, however, extra payments may not provide much benefit.

"Depending on the interest accrual method, there can be significant interest savings or none at all. Some states allow a 'pre-computed simple interest loan,' which means that there is no financial advantage to paying monthly - i.e. the interest for a given month in the term of a loan has a set amount of interest." - Tom Holgate, executive vice president of auto finance and insurance at Way.com [4]

Keep in mind that biweekly payments require a tighter budgeting approach. Since payments are more frequent, there will be months where you’ll need to make three payments instead of two, so planning ahead is essential.

Most lenders offer biweekly payment plans and may also allow you to make additional payments toward the principal alongside your regular biweekly payments [7]. To see how much you could save, try using an auto loan calculator tailored to your loan terms before deciding if this option is right for you.

3. Round Up Your Monthly Payments

If you're looking for another way to pay off your car loan faster, rounding up your monthly payments could be a simple yet effective strategy. By rounding your payment to the nearest $50 or $100, you can chip away at your loan balance without significantly impacting your budget [1].

Let’s break it down with an example. Imagine you have a $25,000 car loan with a 7% interest rate and a five-year term. Your standard monthly payment would be $495, and over the course of 60 months, you'd pay about $4,701 in interest [1]. Now, here’s how rounding up can make a difference:

Adding just $50 to your monthly payment could save you $522 in interest and shorten your loan term by seven months. If you can stretch to an extra $100, the savings jump to $938, and you’d finish paying off the loan a full year earlier [1].

Before you start, check with your lender to ensure any extra payments go directly toward the principal balance [6]. Then, take a close look at your budget to see how much extra you can comfortably add each month. Even small increases can make a noticeable difference, especially considering the average auto loan term is nearly six years and the average new car loan amount hit $41,572 by the end of 2024 [6]. The faster you pay off your loan, the sooner you can redirect that money toward other financial priorities. Plus, this approach lays the groundwork for even more aggressive repayment strategies down the road.

4. Use Extra Income to Pay Down the Principal

Got a tax refund, bonus, or unexpected gift? Instead of spending it, consider putting that money straight toward your car loan's principal balance. Doing so can shrink both your loan term and the total interest you’ll pay over time [1]. This tactic complements other extra payment strategies by directly targeting the principal.

Here’s an example from Virginia Credit Union: On a $10,000 loan with a 5% interest rate and a five-year term, adding just $50 extra each month toward the principal could help you pay off the loan nearly 18 months earlier and save about $340 in interest. Increase that extra payment to $100 per month, and you could shave off almost two years and save around $660 in interest [10].

Why does this work? Interest is calculated on the remaining balance. Every dollar you put toward the principal reduces that balance - and, in turn, the amount of interest you’ll owe [8]. With the average new car loan hovering around $41,572 and loan terms stretching close to six years [6], even small extra payments can make a noticeable difference.

"If your lender allows it and you can afford it, making extra principal payments on your car loan can help you save on interest and pay it off faster." - Karen Axelton [6]

Before making extra payments, check with your lender to ensure those funds are applied directly to the principal. You may need to follow specific instructions, like checking a box online or including a note with your payment [6][8].

If windfalls are rare, you can still make steady progress by automating a small extra payment of $25–$50 each month. After each payment, review your loan statement to confirm the funds were applied correctly. This ensures you’re maximizing your savings and staying on track to pay off your loan early.

5. Cancel Optional Loan Add-Ons

Optional add-ons like extended warranties, GAP insurance, credit life insurance, or service contracts can quietly inflate your loan amount and rack up extra interest over time[11]. These extras might seem helpful at first but often end up being unnecessary. Some common examples include Guaranteed Asset Protection (GAP), credit disability insurance, unemployment insurance, tire and wheel warranties, extended warranties, service contracts, and exterior maintenance packages[9].

Here’s the upside: you can usually cancel these add-ons and redirect the refund toward your loan's principal. Doing so not only trims down your loan term but also cuts the total interest you’ll pay. Start by reviewing your contract carefully to identify any extra charges.

Many people only realize they’re paying for these add-ons after closely examining their sales contract and financing agreement. As Ari Lazarus, Consumer Education Specialist at the FTC, advises:

"Read the sales contract and financing agreement carefully. Ask for a printed copy. Make sure the terms you agreed on match what's in the contract. Get answers about any extra fees you don't recognize and tell the dealer to remove any add-ons you don't want"[12].

Once you’ve spotted unwanted add-ons, reach out to your dealership’s accounting department in writing. Include the representative’s name and contact information in your correspondence when requesting the cancellation[13]. If you’re trading in or selling your vehicle, providing the purchase order can help speed up the process[13]. Any prorated refund you receive can then be applied directly to your loan principal.

Canceling these extras can make a big difference. Every dollar refunded and applied to your principal reduces future interest charges and gets you closer to paying off your loan faster[9].

6. Apply the Debt Snowball or Avalanche Method

If you're serious about paying off your car loan faster, structured debt repayment methods like the debt snowball or debt avalanche can be game-changers. These approaches help you organize your debts into a clear plan, making it easier to stay on track and accelerate your progress.

Both methods start the same way: list all your debts - including your car loan - along with their balances, interest rates, and minimum payments [19][21]. From there, the strategies differ:

• Debt Snowball Method: Focus on paying off the smallest debt first, regardless of its interest rate. Continue making minimum payments on your other debts. Once the smallest debt is gone, roll that payment into the next smallest balance. This approach builds momentum, as each "win" keeps you motivated. As Ben Luthi puts it:

  "The debt snowball method can help you pay off your smallest balances faster, which can be motivating" [14].

• Debt Avalanche Method: Prioritize the debt with the highest interest rate while maintaining minimum payments on the rest. This method typically saves more money on interest and can shorten your overall repayment time [15][16].

Here's a quick comparison to help you decide:

To see how these methods work in action, Ramsey Solutions provides a helpful example. Imagine you have a $500 medical bill, $2,500 credit card debt, a $7,000 car loan, and a $10,000 student loan. If you apply an extra $500 per month using the snowball method, you could pay off the medical bill in just one month. Then, you'd roll its $550 payment into the credit card debt, eliminating it in four months. After that, you'd tackle the car loan by applying $748 monthly, paying it off in under nine months [19].

Choosing the right method depends on your personality and motivation. Wells Fargo points out:

"If you are analytical and patient, the 'avalanche method' may be the method for you...it should save you in the long run" [17].

On the other hand, if you thrive on seeing quick progress, the snowball method might be a better fit. As Navy Federal Credit Union wisely notes:

"The best debt repayment plan is the one you can stick with until you're debt-free" [18].

Whichever method you choose, consistency is key. Pair it with strategies like making extra payments and track your progress using a spreadsheet or app. Look for ways to free up extra cash - whether by cutting expenses, picking up a side hustle, or saving small amounts daily (often called "debt snowflakes") [20][22]. Every bit counts when you're working toward financial freedom.

7. Explore Flexible Financing Options with Hello Motors

Sometimes, the key to paying off your car loan faster isn’t sticking with your current lender - it’s finding one that better suits your financial needs. By switching lenders, you can reset your loan terms and potentially unlock more favorable options.

Hello Motors works with borrowers across all credit types. Whether your credit is stellar, less-than-perfect, or somewhere in the middle, their team takes the time to assess your financial situation and provide tailored loan solutions. This personalized approach ensures you’re not stuck with rigid loan terms that may not align with your goal of paying off your debt more quickly.

Refinancing with Hello Motors can help in two major ways: lowering your monthly payments or shortening your loan term, both of which reduce the total interest paid. For instance, refinancing a $30,000 car loan from a 9% interest rate over 60 months to a 7% rate over 48 months could save you $3,626 overall [3].

Take a close look at your current loan details to see if Hello Motors’ options might offer you better terms. Their team helps you compare your existing loan with new refinancing opportunities, so you can make an informed decision about whether refinancing will help you pay off your car faster.

Hello Motors also simplifies the process with features designed for convenience. They offer home delivery of vehicles and multilingual support, making their services accessible to a broader range of customers. If you’re thinking about refinancing and possibly upgrading to a different car, their diverse inventory of pre-owned vehicles gives you plenty of budget-friendly options to explore.

Conclusion

Paying off your car loan faster can save you money, reduce interest costs, and ease monthly financial stress. By consistently applying smart strategies, you can speed up your loan repayment and enjoy the benefits sooner.

Even small adjustments can make a noticeable difference. For example, LendingTree reports that making an extra $2,000 payment on a $20,000 car loan with 7% interest could save you $770 in interest and shorten your repayment period by seven months [1].

Before diving into any strategy, take a close look at your income, expenses, and debts. This will help you decide which approach works best for your situation.

If your budget is tight, start with cost-effective methods like canceling unnecessary loan add-ons, rounding up your payments to the nearest $50, or switching to biweekly payments. These steps don’t require a big upfront commitment but can still make a meaningful impact over time.

For those with more financial flexibility, refinancing your loan for better terms or making larger lump-sum payments could be worthwhile. Considering that the average new vehicle loan was $41,572 in Q4 2024 [6], even slight improvements in your loan terms can lead to significant savings.

However, it’s crucial to maintain an emergency fund before committing to aggressive repayment tactics. Draining your savings to pay off your car loan could leave you relying on credit cards - where the average APR was 22.80% in Q4 2024, compared to 6.35% for new-car loans [6] - if unexpected expenses arise.

Ultimately, a tailored mix of these strategies can help you cut down your repayment period significantly. Whether you choose one method or combine several, taking action now will bring you closer to owning your car outright and freeing up funds for other priorities.

Start by reviewing your loan terms and monthly budget. Figure out which strategies align with your financial situation, and commit to following through consistently.