3 Easy Ways To Pay Off Your Car Loan Early

A car loan can be taxing. When you first get one, your credit score dips. If you bought a new car, you are automatically upside-down on the loan for at least two years. Then there is the danger of losing your job. Put it all together and you it can make you a nervous wreck. Since a car is a necessary part of life in most instances, the best thing you can do is find a way to pay off your loan early. Here are three payoff strategies that are easy to incorporate and do not require a huge additional payment every month.

Gigs For Goals

A fellow personal finance blogger on Budgets Are Sexy coined the term Gigs for Goals a while back. The concept is simple: take on extra work in the form of overtime or a side job, then set the funds aside for a specific goal. If you choose to use this method to whittle down your car loan, all you need to do is clarify your goal. Will you wait until you have an entire payment or will you send whatever you have made with your next payment? Setting the goal and sticking to it are key with this strategy.

Divide By 12

This is the way I have been paying down my car loan. I divided the monthly payment by 12, then added that amount to each monthly payment, effectively making 13 payments per year. For example a $250 payment divided by 12 is $20.83, so your monthly payment becomes $270.83. When I began doing this, my budget was very tight, so it was key to keep the extra payment fairly low. The method only adds $19 per month to my budget, it may be more for you as it is in the example above. When I am done, I will have shaved three months from my loan and saved approximately $100 in interest. While those numbers are not going to blow you away, every penny of my money that I do not pay for interest is a penny still in my account. If your budget becomes less tight, you can use this method in conjunction with the ”Gigs for Goals” to become debt free more quickly.

Round Up

You can round your monthly payment up. The amount that you round it up to depends on your budget. For example, rounding your payment up to the next hundred ($300 instead of $237 for example) may be too much for you, but rounding it to the next fifty may work ($250 compared to $237). The amount may sound small and insignificant, but you will be starting down the path toward debt reduction and saving money on interest as well.

Each of these goals is easy and does not require a huge financial commitment. They should fit into any budget without requiring a sacrifice on your part. One other thought, if you bought your car at a time when you had bad credit, you may be able to refinance at a lower interest rate, thus saving yourself hundreds of dollars. No matter how you attack your car loan, good luck!

Should You Finance a Car Before Buying a House?

In my humble opinion, yes you should finance a car before buying a house. Additionally, you should have made at least eighteen payments on at least one auto loan prior to applying for a mortgage. Here is why.

FICO Score

The most widely used credit score is built by the Fair Issac Corporation (FICO). FICO builds its score on five categories. An auto loan will give your score a boost in three areas: payment history, types of credit used, and length of credit history. These three categories account for sixty percent of your credit score. On the other hand, an auto loan will lower your credit score for 60 days after you obtain it. Any time your credit profile is requested by a lender, your score dips temporarily. Once you are approved for a loan, you score dips because it will appear as if you have new credit with a high balance.

Why Eighteen Payments?

Many experts say that making twelve on-time payments on a car loan will give you the maximum credit score boost that you are going to see. They are somewhat right, but…depending on the loan, you may still have too high a balance to see the largest increase in your credit score. Eighteen payments on a new or used car loan should take you out of any negative equity situation and get your balance in line.

Why Does It Matter?

Boosting your credit score before buying a home is important for several reasons:  loan approval, required down payment, and interest rate are chief among them. Most lenders will only offer a mortgage to the top two credit score tiers. That means that you must have a credit score above 679 if you want a traditional mortgage. Also, your credit score dictates whether you will be required to pay 5, 10, or 20 percent down for your home. Lastly, the interest rate that you will be offered is directly tied to your credit score. Since you may be paying this rate for the next thirty years, you can see how important it is to keep it as low as possible. A difference of a single percentage point can cost you tens of thousands of dollars in total interest over a thirty year mortgage.

How to Make Your Car Last Longer

Cars tend to last a varying number of years and miles.  Back in the day–in the 1960’s and 70’s–the odometers on most cars turned back to zero before hitting 100,000 miles. These days, six digit miles are nothing.  In 2011, the average car on the road was over 11 years old. As you may know, most insurers and government agencies estimate that the average car is driven 15,000 miles annually. At that rate, we can safely estimate that, on average, cars on American roads have more than 165,000 miles!

While a small portion of how long a car will last can be attributed to the automaker, the biggest factor is the owner. Factors like how well a vehicle is maintained, how it is driven, and weather conditions affect a vehicles longevity the most.

Never Neglect Maintenance

Regular maintenance of your vehicle is probably the biggest factor in how long it will last. Oil changes are just the tip of the iceberg. Changing your air filter and maintaining your cooling system are essential. Keeping your tires in good repair and at the right pressure is very helpful. Even if you do all of this, you cannot neglect a regular tune-up and all of the scheduled maintenance listed in your owner’s manual. Lastly, be sure to pop the hood from time to time so you can check the hoses and serpentine belt for cracks or splits.

Lighten Your Lead Foot

Cars tend to last longer when the mileage is put on them thoughtfully. Yes, highway miles tend to be less stressful on a vehicle, but only if you keep your speed in check and avoid constant lane changes. If you tend to stay in urban areas while driving, you have to avoid sudden acceleration and deceleration. This causes undue wear and tear, and it just isn’t necessary. As my father told me: ”There is no reason to go from 0-60 between stop signs.” So keep that “lead foot” in check.

Garage Your Baby

If at all possible, garage your car as often as possible. A car port is nearly as good, if you don’t have a garage. Garaged vehicles are subjected to less fluctuation in temperature, which means less wear-and-tear from parts expanding and contracting. If a vehicle is under cover, you don’t have to worry about the two things that can fall out of the sky and ruin your paint:  tree sap and bird poop. If you cannot keep your car covered, at least invest in a sun visor that can keep the interior of the car from heating up so much in summer.

Watch Your Salt

There is a reason that classic car collectors covet cars from places like the Southwest–it’s dry, and there isn’t ever salt on the roads!  Sure, road-salt makes roads safer, but it accelerates the rusting process–big time! Some experts have gone so far as to say that it will kill your car, and environmental groups decry it for damaging the environment. What can you do? Moving is obviously out of the question, so your next best option is to find an automatic car wash that uses low pH (acidic) detergent–or buy some yourself. An older-school method is, after cleaning your car, to spray a solution of water and vinegar on it.

If well maintained, there is no reason that a modern vehicle will not last at least 150,000 miles. Many can be daily drivers after 200,000 miles.