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How to Pay Off Your Car Loan Faster: Here’s What to Consider

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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There are several ways to pay off your car loan faster, several of them without shelling out an extra dime. Auto debt not only accounts for about 9% of all consumer debt in the U.S., it’s growing: monthly payments are larger and terms are longer than they were a year ago. Paying off your car as fast as possible frees up that money for other things.

How to pay off your car loan faster without paying more

The faster you pay off your car loan, the less you’ll pay in interest. But it may not always be possible to throw more money at your monthly payment. Here are some ways you may be able to pay off your car faster without paying additional money on the loan.

Refinance

This is the process of applying for a new auto loan to pay off your existing loan, hopefully with a better interest rate or term.

Pros. A refinance loan could help you pay your car off sooner and with a lower interest rate. Maybe your credit score has improved since your original auto loan — the best rates tend to go to those with the best credit. Average rates dropped at the end of 2020 with an average APR of 4.6% for a new car loan versus 5.5% at the same time in 2019.

Cons. Downsides should be few except for the time spent shopping for the best rate and any fees you might have to pay such as those to your state’s department of motor vehicles to transfer your car’s title to the new lender. These costs should be low, under $100.

Who it may be good for. An auto refinance loan may be a good option for you if:

  • You have a high interest rate and either your credit has improved since you signed for the auto loan or you’re not underwater on the auto loan, meaning you do not owe more on your car than it is worth.
  • You do not face high penalties for paying off your current loan early.
  • You got the auto loan through a dealership, especially a “buy here, pay here” establishment. The average hidden interest rate added by dealers is 2.47% and “buy here, pay here” businesses are known for predatory lending practices.

How to do it. Call your lender to find out how much you owe and your APR. Refinance lenders usually ask for this information, so it’s good to have it on hand. Then you can look for the best auto refinance companies and find potential auto refinance offers.

APR

As low as
1.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Disclosure

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.


Advertised rate is for new and used auto loans for an offered loan amount of $10,000 with a 36 month term.

Cancel any add-ons

Common auto loan add-ons include guaranteed asset protection (GAP) waivers, service contracts or extended warranties, tire and wheel warranties and more — you may have agreed to these when you bought your car without understanding the full cost. Canceling them will decrease how much you owe on your auto loan, allowing you to pay off your car loan faster.

Who it may be good for. Anyone who has add-ons may be able to cancel them. The less you owe, the less you pay.

How to do it. Check your car contract, call your lender or call the dealership to see if any add-ons are listed on your paperwork. If there are any, find out what they are and consider canceling them to get a prorated return. You may need to fill out some paperwork to officially cancel the add-ons, but a few hundred dollars may be worth it.

Special note. If your car has a history of needing repairs, take that into consideration before deciding to cancel an extended warranty. If you are underwater on your car loan, think carefully before you cancel GAP, which is made to protect upside-down borrowers.

Make payments every two weeks

Instead of paying once a month, take your existing car payment and split it in half. Paying every two weeks means your loan balance is continually decreasing, which has the effect of paying less interest over the course of the loan.

Why it can be good. This is a way to essentially make an extra payment without forking over extra money.

Who it can be good for. By doing this, you’re not paying any more than you normally would, but it has the effect of making an extra payment a year, so it may be especially good for someone on a tight budget.

How to do it. Check with the lender to be sure you won’t run into any prepayment penalties. If not, make a half payment every two weeks instead of one full payment each month. You could automate your checking account to send the payment, or give permission to the lender to automatically pull the payment.

How to pay off your car faster with the most bang for your buck

Have extra cash to put toward your auto loan? While the methods above are good, the fastest way to pay off your car is to increase the amount you’re spending. Almost all of these tips involve making extra payments to the principal, the amount you owe on the car not including interest. But first check with your lender that you will not be penalized or charged a fee for prepaying your loan.

Make extra payments to the principal

Why it can be good. Auto loans have simple interest, which means that for every dollar you put toward the principal, you pay exponentially less interest to the lender.

Who it can be good for. Anyone who has an auto loan from a lender who doesn’t penalize early payoff or payments to principal.

How to do it. Call the lender and ask how you can make extra payments to the principal only. You should do this because extra payments not to the principal means you’re paying interest — all you’re doing is giving the bank money early. If you make payments to the principal, you’re not paying as much in interest, which is very good.

Round up your car payment

If you find it difficult to save money or you don’t have quite enough cash to make a whole extra payment, check out this round-up method.

Why it can be good. You could pay off your auto loan early without changing how often you make your payments.

Who it can be good for. If you have a hard time saving money, this is a good way to do so.

How to do it. If the lender will not charge a prepayment penalty, you have nothing to lose by doing this and you can do it in two ways:

  • Simply round up your monthly payment. For example, if your monthly payment is $350, round up and pay an even $400.
  • Use a money savings app, such as Acorns, to round up what you pay on all of your purchases to the nearest dollar and then pay that money to the auto loan. For example, if you got gas for $15.30, the app would round the charge up to $16 and $0.70 could go into your savings account. A little goes a long way and by the end of the month, you may have $50 you could put toward your auto loan.

Attack other debts: avalanche vs. snowball

We’re not talking about the weather; these are two popular methods used to pay off debts faster. The avalanche method prioritizes paying off high-interest debt first. The snowball method involves paying off your debts starting with the lowest amounts. You can read about more debt payoff methods here.

Why it can be good. These are methods that could help you pay off all your debts, not just your car loan.

Who it can be good for. If you have multiple loans or debts, these methods may help you organize them and pay them off.

Snowball method: how to do it. This is a three-step pattern that should allow you to “snowball” your money to pay off your car loan faster.

  1. Look at your loans and rank them from lowest to highest.
  2. Then focus on that smallest loan, paying it off as quickly as you can with any extra cash available while making minimum payments on your other debt.
  3. Once it’s paid off, congratulations! You no longer have that payment to make. Choose another loan and repeat the process, using the money you would have paid on the loan you paid off.

Avalanche method:how to do it. This method prioritizes debt with the highest APR. For example, if you’re paying a higher interest rate on credit card debt than your car loan, you may be better off using any extra cash to pay that down first.

  1. Look at your loans and rank them from highest APR to lowest.
  2. Determine how much extra cash you can put toward the debt with the highest interest while making minimum payments on your other debt.
  3. Once it’s paid off, roll the money you were using to pay down that debt into the next one.

Utilize any windfalls

Regular extra payments may not always be realistic for your budget, but if you get any money outside of your budget that you didn’t count on, using that money as one-time extra payment toward the principal could really help.

Why it can be good. Any “windfalls” you have, such as a tax return, a refund, a bonus, a big tip or a pay raise, can be put toward the principal on your auto loan.

Who it can be good for. If you were not counting on the windfall, the extra money you got is just that — extra money. By using it as a payment to principal on your auto loan, you’ll save more money because the less you owe, the less interest you’ll pay.

How to do it. It might take some self-control, but use the windfall cash to pay the auto loan. The sooner you’ll pay it off, the more money you’ll have later to spend on things you’ll enjoy.

Make extra income

If your regular paycheck isn’t able to stretch any further, consider a side hustle and put the earnings toward your auto loan.

Why it can be good. A part-time job a few hours a week could add up to enough cash to make a significant dent in what you owe.

Who it can be good for. Anyone with some extra free time may be able to find a part-time job, temp work, freelance assignment or other gig.

How to do it. Depending on what you’re willing and able to do, you could sign up at a temporary work agency, look on job sites and/or talk to people you know about any job opportunities. Just remember to spend the money you make on paying off the principal of the auto loan. You can check out this guide to monetizing a hobby.

Remove extra expenses

What are you willing to cut out of your budget or give up to pay off your car loan faster? Again, every bit helps, if the extra cash goes toward the principal of your auto loan.

Why it can be good. If you aren’t willing or able to make more income, spending less can be an equally good option and, as a bonus, you can keep doing it even after your car is paid off and save the money.

Who it can be good for. Practically anyone could do this.

How to do it. Take a look at your credit card statement or write down what you buy so you can see your spending habits in black and white. Then, decide what you could cut out or possibly get a better deal on — it might add up to more than you think. Maybe you could eat out once a week instead of every day. Maybe you could find cheaper auto insurance. Then apply that savings to your auto loan principal.

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Review: Navy Federal Credit Union Auto Loan

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Are you shopping around for your best auto loan rates before you buy a car? If not, you should be.

It helps to get an idea of the type of loan you could be approved for before you make a trip to the dealership. Plus, credit unions like Navy Federal Credit Union may offer some of the best rates compared to traditional banks. Navy Federal auto loan rates range from 1.79% to 17.99% for those eligible for membership, including active-duty military members, veterans, retirees and their families.

Navy Federal auto loan details

APRs (annual percentage rates) start at 1.79% for terms up to 96 months. Like other lenders, however, some of the lowest Navy Federal auto loan rates go to new-car buyers who choose the shortest terms. The credit union has competitive APRs for used cars, too, particularly late-model vehicles. The maximum loan term for used vehicles is 72 months. Used or new, loan amounts start at $250 — there is no maximum.

Starting APRs for New, Used and Refinance Car Loans
Vehicle AgeUp to 36 months37 - 60 months61 - 72 months73 - 84 months85- 96 months
New, up to 7,499 miles1.79%2.19%2.29%4.69%5.59%
Used, within 3 model years, 7,500-30,000 miles2.29%2.39%3.89%N/AN/A
Used, over 30,000 miles3.89%3.89%4.29%N/AN/A

Long auto loans

We don’t recommend an auto loan longer than 72 months. The longer your term is, the more you’re going to pay over the life of the loan. Navy Federal offers a 96-month auto loan, but no one wants to be paying back a car loan for eight years. Stick to your budget and remember not to focus solely on the monthly payment — take the overall cost of the loan into consideration.

The fine print

There are no additional fees associated with a Navy Federal auto loan. Rates are based on your credit (having a FICO Score over 700 helps) and, as mentioned earlier, the year model of the car you’re looking to finance. You may use Navy Federal auto loans to buy from dealerships and private parties.

How to apply for a Navy Federal auto loan

To apply for a Navy Federal car loan, which is possible to do online, you’ll first need to be a member of the credit union. We’ll talk more in a minute about membership requirements, but here’s what you’ll need to start the auto loan application process.

Information needed to apply for an auto loan

For each person that is to be on the loan (including a cosigner, if there is one), you’ll need to provide their name, address, employer and income. From there, the level of information you need depends on where you are in the car-buying process.

If you’re still shopping for a car and looking for a preapproval, you’ll need:

  • Amount you want to borrow. Leave room for taxes and fees, which usually add up to 8% to 10% of the car’s value, and subtract the down payment you plan to make. If possible, we recommend paying cash for taxes and fees instead of rolling those costs into your loan.
  • Trade-in details. If you have a trade-in vehicle, you’ll need to provide its VIN (vehicle identification number) or year, make, model and trim.
  • Loan term. Preferred number of months for repaying the loan.

If you already know the exact car you want to buy, you’ll need to provide additional information:

  • Details of the car you want. Its exact mileage, VIN, year, make, model and trim.
  • The seller’s information. The name and address of the dealership or private seller.

Navy Federal membership requirements

Those with military connections are eligible to join Navy Federal Credit Union. This includes family members of and those who are:

  • Active duty in the Army, Navy, Marines, Air Force, Coast Guard, National Guard or Space Force
  • A member of the Delayed Entry Program
  • A Department of Defense (DoD) officer candidate or ROTC member
  • DoD Reservists
  • Retirees from any service branch

You may also qualify if you’re:

  • A DoD civilian employee or retiree
  • A federal government employee assigned to a DoD installation
  • A DoD contractor assigned to a federal government installation

Navy Federal defines family members as parents, grandparents, spouses, siblings, grandchildren, children (adopted children and stepchildren included) and members of your household.

Pros and cons of a Navy Federal auto loan

Navy Federal auto loan rates are among the lowest we’ve seen, even among fellow credit unions, which tend to have lower APRs than many banks. But membership criteria is stricter than other credit unions, so a Navy Federal car loan won’t work for everyone.

Pros of a Navy Federal auto loan

  • Competitive APRs
  • APR discount: Active-duty and retired military members with direct deposit could get a 0.25 percentage point discount off even the lowest rates.
  • Auto-buying program: Shop for and finance a car, all in one place, through Navy Federal’s auto-buying program. You may be eligible for member-only pricing on new cars. If you’re car shopping while serving overseas, Navy Federal offers a car-buying program for you, too. Delivery is possible stateside or to your overseas duty station.

Cons of a Navy Federal auto loan

  • Strict membership requirements: If you don’t have a connection to the U.S. armed forces, you might not be eligible to join.
  • Not instant: In a world of near-instant gratification on the internet, it seems odd that you have to go to a branch in person or wait to get your auto loan check in the mail. Other lenders will overnight a check to you or arrange for electronic delivery.

Comparable auto loans

If you don’t meet Navy Federal’s membership criteria, there are still great options out there for an auto loan. We encourage you to reach out to your local credit union or take a look at these other top auto lenders listed on our site:

Consumers Credit Union

  • APRs as low as 2.69%
  • Terms up to 84 months
  • Loan amounts up to $250 - $100,000

Capital One

  • APRs as low as 3.39%
  • Terms from 36 to 84 months
  • Loan amounts from $4,000

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How to Get a Car Loan With Bad Credit

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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A down payment and a strong cosigner are usually the best ways to get a car loan with bad credit. It may seem challenging to find a bad credit car loan, but there are many lenders willing to work with borrowers who have poor or damaged credit. The challenge is finding an affordable rate and avoiding any scams along the way. Following these steps could help increase your chances of getting approved for an auto loan with a rate and terms that work for you.

Steps for getting a car loan with bad credit

You could go straight to a dealership and apply for a loan, but there could be a better way to get your most affordable bad credit auto loan.

Step 1: Check your credit

There may be an error dragging down your credit score. Check your credit history for free at AnnualCreditReport.com to make sure that there are no mistakes.

If there are mistakes, here’s how to dispute a credit report error. You’ll need to write to the credit bureaus that show the error and the financial institution that gave the incorrect report. Keep copies of the correspondence you send. Once credit reporting agencies receive a dispute, they must investigate and report back to you within 30 days. If you are unsatisfied with the investigation, you could issue a complaint to the Consumer Financial Protection Bureau.

Credit history vs. credit score

Negative information on your credit report can affect your credit score. There are several ways to check your score. When you know your score, you’ll have a general idea about the APR you may receive. While there’s no set minimum credit score for buying a car, the rule of thumb is this: The higher your score, the lower your auto loan rate.

Step 2: Set a car budget

As the modern marvels of machinery that they are, cars are expensive. Americans with the lowest credit scores borrow an average of $15,845 for used cars and $27,867 for new cars. It’s vital to make sure your vehicle is affordable to you. You could use the 20/4/10 rule as a guideline for your car-buying budget: Put 20% down, finance for no more than four years and keep your total transportation costs under 10% of your income.

20/4/10 Rule Example
Gross monthly income

$4,000

10% of gross income

$400

Average cost of car insurance

$78

Estimated cost of fuel

$50

Estimated cost of maintenance

$10

Recommended monthly car payment

$262

Your car ownership costs will vary, but you could use a car affordability calculator to see what could fit in your budget. If you want to get a professional’s opinion on your credit and budget situation before buying a vehicle, the National Foundation for Credit Counseling offers free and low-cost credit counseling.

Step 3: Save a down payment and look for a cosigner

While it’s possible to find a bad credit car loan with zero down payment, down payments can:

  • Increase the likelihood that a lender will make you a loan offer
  • Possibly lower your APR
  • Prevent your car loan from being underwater

The traditionally-recommended down payment is 20% of the car’s price. How much you actually put down is up to you. If you’d like help saving, here are some of the best money-saving apps listed on our site.

A cosigner could help

If you’re having trouble getting approved for a car loan or a car loan at the rate and terms you prefer, a cosigner could help. The downsides are that a cosigner is risking their own credit and possible fees should you default on the loan.

Step 4: Research lenders and get preapproved

Potential lenders could include your own bank, credit union or online lender. We looked at more than 100,000 subprime auto loan applications and chose the three top bad credit car loan lenders based on popularity and average APRs borrowers received.

Best Lenders for Bad Credit Car Loans
LenderAverage APR for Subprime BorrowersAmountsTerms
Capital One

12.50%

$4,000+36-84 months
RoadLoans

17.84%

$5,000 - $75,000Up to 72 months
Carvana

19.39%

Not available36-72 months
Source: LendingTree customer data, Q2 2020

Whichever lender you choose, applying for a preapproval — ideally, more than one — before you go to a dealership. Dealers can and often do raise a customer’s interest rates. Ergo, it’s best to cut out the middleman and apply directly to a lender.

Consider a personal loan instead

If you’re having trouble getting a car loan, a personal loan might be an option. The pros of using a personal loan to buy a car include flexible loan amounts and no restrictions on vehicle age or mileage. However, personal loans tend to have higher APRs than auto loans.

Step 5: Negotiate at the dealership

By getting a loan preapproval, you can walk into the dealership focused on getting your best price possible on your new car. Dealers will try to distract you with their own loan offers and talk of monthly payment. A car-buying secret is to keep your focus on the total price of the vehicle. Once that’s set, see if the dealer can beat your preapproved loan rate. Pay attention to how long the loan term is. Even with a lower rate, you may end up paying more in interest over a longer loan.

Here’s more on how to negotiate car price and when to walk away.

Step 6: Sign and set up automatic payments

Finalize the paperwork with the seller and drive off with your car. You may have up to 30 days from the day you sign until your first payment and it may take almost that long for your state government to process the paperwork and get the permanent vehicle registration to you.

Some lenders will offer you the chance to sign up for automatic payments at the same time as when you sign for the car loan. Other lenders will contact you regarding payment methods.

Set up automatic payments so that it’s easier to make all payments on time. You’ll still be able to pay off your car loan faster, if you choose.

Refinance for a better rate later. Paying your car loan on time could help increase your credit score and decrease the amount you owe. You could refinance your bad credit car loan to a better rate after roughly two years, give or take.

Avoid bad credit car loan scams

Buy-here, pay-here dealerships advertising “No credit? Bad credit? No problem!” often come with high rates and fees. They know that many customers who walk in may not qualify at traditional dealerships and instead depend on used-car businesses that serve as their own banks.

“In general, buy-here pay-here financing is just overpriced junk,” said Rosemary Shahan, founder of Consumers for Auto Reliability and Safety (CARS) Foundation. “There are just too many games that they can play.”

Some in-housing financing may be reputable, but unscrupulous businesses have been known to use these tactics:

Yo-yo financing

Yo-yo financing is when dealers allow you to sign a contract at one rate, and then change the terms of the contract a few weeks after you’ve taken the vehicle home. They usually claim that the “financing fell through” and you need to sign a new contract at a higher interest rate.

To protect yourself, keep copies of all loan documents you sign, and don’t drive away with a car until you’ve signed for it.

Fees, overpriced extras

There are dealer fees that can’t be avoided, then there are fees you typically won’t find with traditional lenders, such as loan origination charges or steep late payment fees. These may come on top of overpriced extras. If you want add-ons like extended warranties, do your research ahead of time. You’ll most likely find them elsewhere for less.

Undervalued trade-ins

Your old vehicle is an asset and you should get as close to Kelley Blue Book value as possible if you decide to trade it in. Some shady dealers will undervalue your vehicle, leaving you with less money to put toward your new car. Financing a larger amount than necessary at high rates and fees is exactly what the unscrupulous dealer is hoping for. A private sale will almost always yield the biggest bang for your buck, but that might be inconvenient for you.

Mechanically unsound vehicles

Some unscrupulous used car dealers sell lemon vehicles to unsuspecting customers and worse, label them “certified pre-owned.” Legitimate CPO vehicles are generally sold through franchised dealers with the automaker’s seal of approval. Protect yourself by checking for safety recalls. If the dealer doesn’t provide a vehicle history report, there are several places you can buy a VHR for yourself.

Remember, once you’ve purchased the vehicle, it’s very difficult to return it.

Bad credit car loan FAQs

Deciding on whether to buy a new or used vehicle? Due to depreciation, buying a three-year old vehicle can mean you only pay about half of what the vehicle costs new, and the car still has most of its life span left. Borrowing less for a car may also increase your loan approval chances.

Try to steer clear of 84-month car loans. Yes, it’s a way to lower your monthly payment, which may be important in finding an affordable auto loan. But the risks usually outweigh the benefits: higher interest charges plus a greater likelihood that you’ll wind up underwater on your car loan. By the end of those seven years, you could be on the hook for monthly car payments and repair costs.

Purchasing a car before filing for bankruptcy can be seen as a sign of fraud. You may be able to buy a car during your bankruptcy.

Yes, but it might be best to wait a year or two instead of immediately getting a car loan after a bankruptcy is discharged. This could allow you to attain a car loan with lower interest.

If you don’t get approved for an auto loan, ask the bank why. Do you have insufficient income? Do you have a recent auto repossession on your credit report? Finding out why could help you fix the problem. Just because one lender didn’t provide a loan offer, doesn’t mean you can’t get a car loan.

This depends on the lender and your application. Some banks, credit unions or online lenders will not lend to you unless you have a cosigner. The cosigner agrees to pay for your loan if you stop making payments. If you have low income and bad credit, you’ll probably need a cosigner.