Want To Pay Off Your Car Loan Faster?

For many Kiwis, a car loan is a necessary step to get that ute for work, buy a family-sized SUV, or even just the good old everyday car. Your vehicle gets you from A to B, opens up weekend adventures, and is often crucial for work - but let's be honest, no one enjoys having a car loan.

The monthly repayments can feel like a financial burden, and the thought of saving money for other goals, such as a house deposit or an epic overseas trip, has to take a back seat to car loan repayments. But what if there was a way to speed up the process, save a significant chunk of interest, and reclaim your financial freedom sooner?

Paying off your car loan faster isn't just a fantasy, it's an achievable goal (with the right strategies). In this quick guide, we'll dive into some practical, actionable steps you can take to accelerate your car loan repayments to get out of car debt sooner!

Why Pay Off Your Car Loan Early?

Before we get into the "how," let's quickly remind ourselves of the (compelling) "why." The benefits of paying off your car loan faster extend far beyond just shedding a monthly payment, you will be able to work towards achieving:

• Interest Savings. Probably one of the biggest motivators, especially for those with higher interest rates or longer terms where you accrue a substantial amount of interest over time. Every extra dollar you pay towards the principal reduces the total interest you'll pay over the life of the loan.
• Increased Cash Flow. Imagine having an extra few hundred dollars in your bank account each month because you no longer have a car payment. This freed-up cash flow can be directed towards other financial goals, investments, or simply enjoying life more.
• Reduced Financial Stress. Debt can be a heavy burden. Eliminating a car loan means one less financial obligation to worry about, providing significant peace of mind.
• Stronger Overall Financial Situation. Paying off debt demonstrates financial discipline and frees up capital that can be used to build an emergency fund, contribute more to KiwiSaver, or invest.

Checklist For Accelerating Car Loan Repayments

Ready to hit the accelerator on paying off your car loan? Here are a few proven strategies to help you pay off your car loan faster.

1. Make Extra Payments (Even Small Ones Help)

One of the golden rules of debt repayment is that any extra money you can put towards your loan principal will make a difference, not just to the interest payments but to the loan term. Some tactics might be:

• Rounding Up Payment Amounts. If your payment is $385, round it up to $400. That extra $15 per month might seem small, but it adds up over time!
• Switching To Bi-Weekly Payments. Instead of one monthly payment, make half a payment every two weeks. This results in 26 half-payments a year, which equates to 13 full monthly payments instead of 12. This subtle shift can shave months off your loan term and save you hundreds in interest.
• Apply The ‘Extra Money’ Principle. Did you get a bonus at work? A tax refund from the IRD? An inheritance? Found a $50 note in an old jacket? Instead of spending it, throw a significant portion of it directly at your car loan!
• Make One Extra Payment. Aim to make one extra full payment each year. You can break this down by adding a portion of your monthly payment to each regular payment, or by saving up for a lump sum payment.

Pro Tip: Always check with your lender to ensure there are no penalties for making extra or early payments. Most car loans in NZ are designed to be flexible, but it's always good to confirm.

2. Refinance Your Loan For A Better Deal

If your credit score has improved since you first took out your car loan, or if interest rates have dropped, refinancing could be a game-changer. A lower interest rate means more of your payment goes towards the principal, reducing the overall cost of the loan and helping you pay it off faster.

At the same time, refinancing offers the opportunity to aim for a shorter loan term, even if it means slightly higher monthly payments. This is key to accelerating repayment and significantly cutting interest. Compare offers from different lenders, including specialist car finance companies and ensure you factor in any fees associated with refinancing.

Pro Tip: Be wary of refinancing into a longer term, even if it offers a lower interest rate, as you could end up paying more interest over the long run.

3. Boost Your Income (Even Just Temporarily)

More income means more money to throw at your loan. This might mean taking on a side hustle - could you use your skills for some freelance work? Deliver food, offer dog walking, or sell crafts online?

Do you have old furniture, electronics, or clothes gathering dust? List them on TradeMe, Facebook Marketplace, or local buy-and-sell groups. Alternatively, consider taking on overtime, asking for a raise, or seeking a promotion (if appropriate).

Pro Tip: Even a few extra hours a week can generate income dedicated solely to your car loan.

4. Slash Your Expenses (And Redirect the Savings)

This is where smart budgeting comes in. Every dollar you save from your regular spending can be temporarily redirected towards your car loan. Some steps that might help in this process are:

• Create A Detailed Budget. Track every dollar that comes in and goes out. Use apps or spreadsheets to understand where your money is truly going.
• Distinguish Between "Wants" vs. "Needs". Are there subscriptions you rarely use? Daily coffees you could cut back on? Unnecessary impulse purchases?
• Reduce Discretionary Spending. Cook more at home, pack lunches, find free entertainment, and cut down on takeaways.
• Shop Smarter. Look for deals on groceries, compare prices on insurance (home, car, health), and seek out cheaper alternatives for your regular day-to-day services.

Pro Tip: Don’t forget to factor in ways to reduce your vehicle's operating costs. Drive efficiently, keep up with maintenance to prevent costly repairs, and shop around for cheaper registration and WOF inspections when due.

5. Consider A Lump Sum Payment (If Possible)

If you come into a significant sum of money, a lump sum payment can dramatically reduce your principal and interest. This could come from selling an asset (a second car you rarely use, or other valuable items), a bonus/extra commission or an unexpected windfall and even a tax refund!

Pro Tip: Start today. Even a small extra payment can set you on the path to being car-loan-free sooner than you think!

6. Stay Motivated And Track Your Progress

Paying off debt can be a long game, so staying motivated is the goal. Creating a visual indicator of debt reduction and seeing your balance decrease can be incredibly encouraging. Setting yourself mini-goals or celebrating smaller milestones can also be beneficial, as it helps you focus on the progress you're making rather than the entire loan amount.

Set up automatic payments for your regular car loan amount, plus any extra you plan to contribute. This ensures consistency and prevents you from "forgetting" to pay extra amounts, and even takes some of the stress away as you don’t have to think about the money disappearing.

Pro Tip: Don’t forget to reward yourself (sensibly) once you hit a significant milestone. Give yourself a small, non-financial reward to keep momentum going!

7. Before You Start - Check Your Loan Agreement!

Always, always review your loan agreement or contact your lender before making significant changes to your repayment plan. You are likely to encounter early repayment penalties in some cases (fees for paying off the loan early) and confirm that extra payments are applied directly to the principal balance, not just counted as an advance payment on your next month's bill. This is important for maximising interest savings.

Pro Tip: Always read the fine print! If in doubt, get a legal professional to look it over.

Paying off your car loan faster is a marathon, not a sprint. It requires discipline, smart planning, and consistency, but the rewards are well worth the effort. By implementing just a few of these strategies, you'll be well on your way to saving money, reducing stress, and ultimately achieving greater financial freedom! ‍Want to get a car loan but not sure where to start? Give the friendly team at CarMoney a call today to discuss how much you can borrow.