Getting a car loan with poor credit can be expensive, but you can save money by paying off your auto loan ahead of schedule.
Is Bad Credit Making Your Car Loan Expensive?
As a credit-challenged consumer, you typically face a higher interest rate when you're approved for a car loan. Interest rates are what consumers are charged by a lender to borrow money. Most auto loans are simple interest loans, which means interest charges accrue daily based on what you owe.
A higher interest rate leads to increased interest charges over the course of your loan. In some cases, this could add thousands of dollars to the total cost of financing. Interest rates vary from lender to lender, and are mostly based on credit history. Generally, the lower your score, the higher the interest rate.
Money Saving Ways to Pay Early
No one wants to pay more than necessary for a car loan. If interest charges have you feeling the strain, you can reduce your burden by simply paying your auto loan off early. Before you dismiss the idea of being able to do this, take these tips into consideration:
- Pay more when you can – Saving money on your car loan doesn't have to cause you more stress, or happen in any set time frame. Every time you pay more than is due on your loan, you're saving money in interest charges. A few ways to do this can include something small like adding a few dollars here and there, or something big like using your tax refund to help knock down your balance.
- Round up your payment – If your car payment, for instance, is around $422.64 a month, rounding up your total payment to $450 or $475 a month can make a significant impact. For example, say you take out a $19,000 loan for 60 months at a 12% interest rate. In this case, you're paying $422.64 a month, and paying $6,358.74 in interest charges. Rounding up the payment to $450 a month can save you over $500, while a payment of $475 a month saves you over $1,000 in total interest charges.
- Split your payment in half – Another way to reduce your balance early in an auto loan is to split your payment in two. By making half your payment at the beginning of a month and the rest on your due date, you can reduce the interest charges that accrue between payments.
- Make bi-weekly payments – You can make an extra full loan payment each year by using this early payment method to save money. To reduce your loan balance with bi-weekly payments, simply make a half-payment every two weeks. This results in making 13 full payments a year instead of just 12.
Save More with an Affordable Car
If you're looking to save money on interest charges when you're struggling with poor credit, paying off your auto loan early is a good way to start. However, if you need to make a bigger change, it might be time to consider getting a more affordable vehicle.
Here at The Car Connection, we want to help you find the car you need without the hassle of driving from dealership to dealership searching for a lender. We can connect you to a dealer in your area from our nationwide network of special finance dealerships. Just fill out our quick and easy auto loan request form, and we'll get right to work.