You need a new car, but who has the full price of a car, even a second-hand one, stashed away somewhere? Inevitably, we take out a loan to finance the car, and that means we end up paying a whole lot more than the purchase price because of loan interest. Since this is calculated based on how much you’re in the red, you’ll pay a whole lot less if you can bring that negative balance down fast. Try these simple, yet savvy strategies to save big time.
1. Round up your installment
You’ll be amazed what a difference even $3 to $5 extra a month can make. No matter how tight your budget is, this should be an affordable option, and you’ll have your car paid off months earlier while saving on interest. Just how much you’ll save, and how much sooner you’ll pay off your loan depends on your particular finance plan. Try using BankRate’s early payoff payment calculator to see just how much of a saving you’ll get from paying just a few dollars more every month.
2. Put monthly savings into your installment
Finding thrifty tricks to reduce your household expenses and then putting your savings into your car payment can do even more for you than just rounding up your installment. Turn it into a game – there are lots of ways to save without turning your life into a misery. For example, if you usually eat out twice a month, reduce this to once a month and calculate the amount you will save so that you can add it to your installment.
3. Never skip an installment
Even if your loan allows you to skip an episode, don’t give in to temptation. Remember the power of compounding. A skipped payment increases your debt, and interest is charged on this amount every month until you have paid off your debt. By the time you’ve done this, you’ll have spent a whole lot more interest than you really needed to.
4. Find out about paperless statements
By choosing to receive electronic statements, you save your financial service provider on admin and postage, and they’re often willing to pass that saving on to you. If you want to keep a paper copy of your statement, you can always print it out yourself and still save.
5. Shop around, and if you find a better deal, refinance
Did you really get the best offer on your car loan? It’s well worth checking. If you can find a plan with a lower interest rate, your new lender will be happy to pay off your old loan and refinance your debt. But don’t be tempted to opt for a longer repayment period – you could lose your saving if you extend your repayment period.
6. Cut your insurance cost and add your savings to your loan repayments
You do need insurance, but if you can luck out with a cheaper plan that still keeps you covered, you win all the way. If you have Costco membership, you can use it to save on gas and car insurance. And you could cut your premiums by as much as 50%. You can also get free quotes from many insurance companies in one place on sites like GoInsuranceRates.
7. When you have more, pay more
If you’re lucky enough to get a bonus at work or some birthday money as a gift, use at least some of it to pay extra on your installment plan. You can still spoil yourself, but think of how every dollar you pay extra on your payment will save you in the long run.
8. Sell household junk and use the money to save on interest
Most of us have junk we don’t use. Clean out your closets and your garage and sell things you don’t need online or at a garage sale. Has junior outgrown his bike? Do you own an evening dress you never wear? You’ll be amazed at what people will be willing to pay for things you don’t use. You get to remove junk that was just in your way, and you get to pay off your car faster and save.
9. Pay fortnightly
This strategy is especially useful if you are paid every two weeks. Why does it work? Well, there are 12 months in a year, but paying fortnightly will give you the equivalent of 13 full payments over 12 months. It’s like making one full monthly payment extra per year.
10. Plan for an extra payment every year
If the ‘pay every two weeks’ option doesn’t suit you, either plan for one full new installment per year or divide it up over 12 months so that you get the benefit of that extra payment. You could stand to save thousands, and your car will be paid off so much faster!
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