How to Pay Off Your Auto Debts Faster To Enjoy a Debt-Free Existence
We know that approximately seven out of every ten individuals actually borrow money for purchasing their cars. In this context, we know that an auto loan is supposed to be one of the biggest financial obligations one could ever have.
If you have an auto loan account, it would be taking you between 60 months and 72 months to get out of the debt. That means you would have to deal with your debts for almost 5-6 years. That would imply a lot of interest to be paid by you during the entire loan term. Here are some expert tips to get out of this loan trap fastest possible so that you could lead a stress-free and debt-free life.
Get into the Habit of Paying Every Two Weeks Half the Monthly Payment
Once you make a payment religiously every two weeks, 26 half-payments would be made every year. This would be amounting to 13 full payments every year instead, of 12.
Suppose you are having a loan of £10,000 to be repaid in 60 months, you would end up saving £35 in terms of interest; however, you would be successful in repaying your auto debt in precisely 54 months instead of 60 months. You could be happy and debt-free at least, six months in advance. This could be a smoother and effortless transaction provided you go on paying every two weeks instead of once a month.
Start Rounding up
The simplest and hassle-free way of paying off your auto debt quickly is to ensure that rather than paying just the due amount every month, you must pay some extra amount that your income would actually permit. All these extra payments in a year would go a long way in reducing your principal, paying less in terms of interest, and becoming debt-free far more quickly. One of the tried and tested way of making an extra payment every year without hurting your pocket much is simply rounding off the monthly payment.
Rather than paying exactly what is recommended, it is a good idea to start rounding up your payments to the nearest £50 helping you in repaying your auto debt far faster. Suppose you have taken an auto loan of £10,000 for 60 months at the rate of 10 percent, then your actual monthly payment would be £212.47. This way, you could repay your auto loan precisely in 60 months after paying a total interest amount of £2,748.23. But if you consider rounding up, you would need to pay just £250 every month instead of £212.47. This way, you could get rid of your auto debt in just 47 months instead of the full loan term of 60 months. You could save £533.54 as you would be required to pay just £2,214.69 in terms of interest.
Start Making One Big Additional Payment Every Year
The savings could continue provided you make at least, one bigger additional payment every year. You must not forget that the earlier you are able to make the additional big payment, the faster you would pay off your auto debt. The early bird actually gets the savings and reaps the benefits. Suppose you have borrowed £10,000 at 10 percent interest rate for a loan term of 60 months. If you dedicatedly make an additional payment of just £500 every year, you would end up repaying the auto debt in just 49 months after paying only £2,279.35 in terms of interest and you would ultimately save £468.88.
Refrain from Skipping Payments
Some lenders may give you the liberty to skip your auto loan payment once or maybe twice every year. You must necessarily resist the temptation to skip the payment. As per expert debt consultants at NationaldebtRelief.com, you must remember that skipping payments would automatically imply lengthening the loan term that would end up costing you more in terms of interest.
Opt For Refinancing Your Auto Loan
Refinancing your auto loan would imply taking your loan and negotiating a more affordable new monthly repayment and also, a new pay-off date. You could opt for refinancing provided you are able to obtain a relatively lower monthly payment and an early pay-off date. Or else, refinancing would make very little sense. Obviously, you would not like to reduce your monthly payment but lengthen your loan term simply because you would be paying more interest on the same principal.
Always Remember to Check Your Rate
Even though your auto loan’s outstanding balance is large, it is not supposed to be your loan having the highest rate of interest. Credit card debts have the highest interest rates; their average interest rate would be almost three times higher as compared to the average car loan interest rate.
Get into the Habit of Paying Your Monthly Payments Electronically
Thanks to the fast-paced digital era, people are following extremely hectic schedules so it is quite possible for you to forget or miss your loan repayment’s due date. In such an event, your lender would be compelled to charge you a late payment fee as a penalty that tends to be quite exorbitant and it is bound to impact your overall credit score. You could contact your bank and issue standing instructions that all payments be done electronically every month. This way, you would never miss any monthly payment in the future. Moreover, several lenders are happy to give you a discount on your loan’s interest rate if you are giving your consent to making electronic payments since it automatically reduces their burden of keeping track of your payments every single month.
Divert Windfall Gains to Your Loan Repayment
Every year, there could be a few occasions when you obtain windfall earnings. These windfall gains could be a raise, a bonus, a birthday gift, a lottery win, or it could be just a tax refund. Make it a point to avoid splurging on shopping or dining out. Instead, make a firm resolution to use these windfall gains toward repaying your auto debt. This way, you could get rid of your auto debt before its scheduled term end. Moreover, you could enjoy some savings in terms of interest because of these unscheduled prepayments.
As a general rule, experts believe that it is better to focus your attention first toward paying off all your expensive credit card debts before you put your emphasis on repaying your auto debt. However, in the case, you are thinking of paying off your auto debts faster, follow the above tips and chalk out your winning stratagem towards a stress-free and debt-free existence!