Statistics Canada states that the average Canadian owes $1.50 for every dollar of disposable income. Debt, the contract involving lenders and borrowers, is an integral part of many Canadians’ lives. Homes, goods and services, education investment and car loans are all major types of financing that most Canadians consider an asset to lead a comfortable lifestyle. After a mortgage loan come the automobiles as the second most expensive investment that a person will make in his or her lifetime.
Purchasing a vehicle out of pocket isn’t uncommon, however several Canadians go for financing as they do not have a lump sum of cash ready. Lenders take into account a borrower’s income, current debt load and collateral assets before making an approval on a loan. The key to monitoring a car loan is to find a way to pay it off as effectively as you can. If you want to buy a new car, it’s vital to mull over the risks involved: potential interest rate increases, personal income complications, property loss if secured with an asset, etc.
Being financially informed and practicing money management skills will help you make responsible financial decisions, which could help you increase your credit score, alleviate stress and save money. Once you have received an approval for auto financing, the next step is to learn how to manage your car loan. These strategies will serve as important factors to bear in mind throughout your entire car loan journey.
As you sign up for a new car loan, remember these methods to pay off your car loan faster.
1. RAISE YOUR MONTHLY PAYMENTS
Increasing your monthly payment can help you pay down your auto loan quickly. Gradually but consistently increasing the amount of money that you put towards your loan can significantly minimize the length of your overall loan term.Paying bi-weekly instead of monthly payments is another good method to cut down on the accumulated interest rates, which can shorten your loan term by several months. If you have additional money coming in during the course of your loan agreement, it’s a good idea to put this extra income towards your loan. By paying off a larger chunk of your loan, you will be able to accelerate the rate at which you pay. Lump sum payments are not fixed and for the most part can be made at the convenience of the loan borrower. Talk to your lender to see if you can start, paying bi-weekly, increase your monthly loan payment or make a lump sum payment.
2. DOWNSIZE YOUR CAR
Sometimes more than the car loan it is the vehicle that needs to be fit in your budget. If you are struggling with the humongous size of your car loan, the expense of your car might be the reason. You may want to consider selling or trading in your current car for a more cost-efficient choice. There are a variety of vehicle models that can offer a safe and affordable option while still being attractive to drivers. By switching to a less expensive car, you can take on a smaller car loan to significantly lighten your credit and payment loan. With a smaller loan and consistent monthly payments, you can pay off your loan in a much shorter time frame. If this last concept seems like it may be a better fit for your current situation, downsizing to a smaller, less costly vehicle could help you work for your loan repayment goal.
3. EVALUATE YOUR CURRENT BALANCE
Assess the loan details with your lender to verify if you’re allowed to make bigger monthly payments, as some lenders will charge a payoff penalty if the loan agreement permits you to pay only a certain amount every month. Before signing the auto loan contract, confirm with your lender if there is a fee for early payoff. Making bigger payments on your loan could reduce the interest rate, but it’s important to understand how much of your monthly payment goes towards the loan principal and how much is directed towards fees and rates.
If monthly loan payments are worrying you, snowball your debt by paying off higher interest rate loans first. The average interest rate on a credit card is usually about three times greater than an auto loan. If you carry a lot of credit card debt, it might be a good idea to pay off your revolving credit down first. Reviewing your loan could help you strengthen your credit score and save money.