Pay Off Car Loan Early. You Don't Want a Loan on Something That Loses Value

You know, when they advertise a new car on TV and they talk about soaring feelings and total freedom, then don't really tell you about how unfree it feels to be tied down to a car loan for years. A car loan does make a lot of sense to people in various life situations. But the thought of how you're committed to paying something off for years before you will own it can be less than liberating. Sensible people don't really mind a loan for a house. Most often, houses rise in value. A car on the other hand, loses value everyday. To them, to pay off car loan as early as possible is what makes sense. Where's the point paying interest on something that loses value?

It isn't just a matter of principle. You save wads of cash by not paying interest on a car loan. Often, you end up paying as much in interest as you would to buy the new car itself. Just imagine what you could do with that kind of money if it was yours.

There are other ways in which holding onto a car loan can cost you dearly. When you have a loan, you're credit score takes a beating. I for instance, had a credit score of 820. After a new car loan and three months of paying everything on time, my credit score was 800. When you have loans, your credit score doesn't like it. If your credit score is around 700 to begin with, a 20 point did can be fatal.Another reason to pay off car loan early.

Okay, so you're convinced. You need to pay off car loan early. So how do you do it?

One way would be to not pay it off immediately if you can't afford it, but to try to shave a few months off, by paying a little extra. Say that your car payment is $325 a month. Try to pay $350 a month instead. Or if you can afford it, try to pay $400 a month instead. You'll take a full year off your payment schedule. That's real savings in your pocket.

The secret is to make a few little changes just like this one that you won't notice outright. It makes things less painful. Make one extra payment one time every year for instance. It doesn't have to be a fixed time. Any time you get a little extra money – from a tax refund or a bonus or something, use it for this. Before long, you will find that you've taken quite a bite out of your car loan.

And make sure that you do not do the opposite of the extra payment, too. Most lenders will give you a payment holiday once or twice a year as if they're being nice to you. They'll send you a letter that says they can just skip a payment once or twice a year and you'll be happier for it. Don't do it. It only prolongs your loan with them, and it makes you pay more interest to them in the end.