Getting approved for a car loan can be a difficult feat. Even if you get approved, you still have to worry about paying it off properly. Perhaps you’ve thoroughly thought of the whole process and made a plan that can help pay your car loan in a hassle-free way. What if there were other ways to speed up your payment process?
As a responsible borrower, you need to learn that managing debt begins by learning how to manage your loans—but you can always take it a step further by learning how to pay them off in the easiest, smoothest process possible.
Check out the tips below if you want to learn how to pay a car loan off fast.
3 Factors to Consider Before Paying a Car Loan Early
Whether you’re getting a brand new or 2nd hand car loan, it’s important to consider some factors first. Learning about these can help you pay off your car loan quickly.
1. Interest rates
Car loans in the Philippines come with fixed interest rates, which differ per bank or lender. Banks typically offer as low as 4.10% and as high as 37.63%, depending on the borrower’s credit score, income, debts, the car’s condition, and the bank’s loan terms.
Once you pay your auto loan early, you won’t have to pay the interest over the rest of your loan. However, this depends if your bank or lender has early prepayment fees, which may be higher than the initial interest.
Make sure to compare interest rates before purchasing a car, as this can help you manage your budget throughout your loan’s repayment period.
2. Early payment penalties
Some lenders implement early payment penalties to cover their losses when the borrowers terminate their agreement before the supposed end of the repayment period. It’s often disguised as “processing fees” since it’s illegal to impose the actual penalty according to the Consumer Act of the Philippines.
When getting an auto loan, inquire about the bank’s early payment penalties to save on possible additional costs. If the bank offers more perks than drawbacks, such as an early payment penalty, compare the price of paying your loan on time to the potential savings you might get from paying early.
3. Other financial obligations
It’s important to consider your other financial obligations before paying your car loan early. If you have extra money to cover all your debts and bills, feel free to pay for your auto loan early. If not, it may be wise just to pay your car loan on time to manage your cash flow throughout your repayment period.
6 Ways to Pay Off Your Car Loan Faster
Once you’re ready to purchase a car, here are some tips on how you can pay off your car loan before the end of your repayment period.
- Round up monthly payments
You can easily pay off your car loan by rounding up your payments. For example, if you borrowed Php1.04 million at a 25.80% interest rate over 60 months and made a 20% downpayment, you would have a monthly amortization of Php17,427.
If you round up your monthly amortization by a few hundred pesos, you can pay off your loan earlier and even save on interest.
- Make extra payments
Instead of spending on non-necessities, you can spend your bonuses, tax refunds, and pay raises on your car loan. Being frugal with your wants wouldn’t hurt, especially if you get to spend on them earlier than expected once your car loan is paid off.
- Reduce your expenses
Aside from allocating your bonuses towards your auto loan, you can also pour more money into your amortization by reducing your expenses. It means cutting back on your use of electricity and other utilities or minimizing your shopping habits.
- Find extra income streams
If your current income is enough to cover your car loan and other financial obligations, consider finding additional income streams to gain some extra money. You can sell some of your belongings, rent out a room in your house, offer unique services, or apply for a part-time job.
- Review or cancel add-ons
Some car dealers offer add-ons such as extended warranties and preventive maintenance services to buff up their offers. While helpful in the long run, they also add to your expenses while paying off your car loan. Consider removing these add-ons after weighing your options with your car dealer.
Get Your Dream Car Today
The automotive industry is one of the most important market sectors in the world. Cars are now considered essential assets in our daily lives. Without them, we wouldn’t be able to travel and transport things. Therefore, owning a car is one of the best investments you could ever make in your life.
The earlier you could pay for your car, the more you could save on interest and other expenses. However, before paying off your loan fast, communicate with your lender and look at your loan terms to ensure you don’t incur any penalties from early payment.
Aside from banks, you can also get an online loan in the Philippines from reliable lenders like Asialink Finance Corporation to finance your car purchase. We’re one of the leading finance companies in the Philippines that offer various convenient and accessible loans with competitive interest rates.
Apply for a car loan now to turn your dreams into reality!