How to pay a car loan off early and save money

By Angela Monroe - August 3, 2020


Everyone with a car loan wants to pay it off as soon as possible. Reduce that monthly expense and own the car outright.

The problem: It’s big bucks to cough up.

In this article, we look at some ideas, tips and tricks on how to pay a car loan off early.

Firstly, can I pay off a car loan early and save money?

Some lenders charge early repayment fees or charge higher interest rates at the beginning of a loan term. This allows them to still make a profit in the event someone pays a loan off early and therefore reduces their interest costs.

Make sure you know the details and whether there are fees attached by reading your loan contracts or contacting your lender.

Round Up

man taking out wallet

If you make repayments manually or can alter the amount you pay, consider rounding up. This means for example, if your monthly repayments amount is $215, pay $250. Even going up a little can make a large difference over time and can save 100s of dollars in interest costs.

Save for Large Payments

woman looking at piggy bank

Make one or two large payments per year. If you put even $30 a week aside for a year, that’s $1,560. You’ll also have a fall back in case you can’t make a payment on your loan. Depending on your loan term and amount, this can make a huge difference. Saving up a large amount of money and using it for a loan may feel like a bit of a shame as you won’t have anything instantly in your hands. Remember, however, the faster you pay it off, the less you’ll have to pay per month.


phone calculator and documents

Everyone trying to save money or pay off a car loan early knows (or should know) the benefit of budgeting. A simple way is to categorise your weekly expenses and find out where your money is going. Stop impulse buying and always make a shopping list before going to a supermarket. Make an allowance for your expenses. For example:

40% – Food / Living expenses

20% – Transport costs

20% – Bills

20% – Loan repayments

Reduce the amount you spend on unnecessary things like junk food, alcohol or online subscriptions. Use the money you’re saving for your loan and knock it off faster.


signing paperwork

Refinance your loan. This is where you renegotiate with your lender for a better rate or simple take out another loan to pay your current one out.

Yes, another loan. It may seem counterproductive if you’re trying to pay off a car loan early but many people do this. You’ll of course aim for a better interest rate and possibly consolidate multiple loans in one hit. Debt consolidation is great for borrowers who see signs of uncontrollable debt. This will reduce your repayment amount per month, often saving thousands of dollars.

Increase Frequency

pen and frequency graph

If you’re making monthly repayments, consider changing them to something more frequent. If you can manage weekly or fortnightly repayments, bump up the amount too. Remember, you pay interest on the amount of money you owe so the less you owe, the less you pay. Try out a loan calculator to see what your repayments might work out to.

Talk to a Broker

woman discussing contract

Brokers are finance experts and deal with borrowers, lenders and interest rates everyday. Most good brokers offer no-obligation advice and can often match your circumstances to a lender that will offer better rates and debt consolidation. You’ll also get some tips on how to reduce your interest rates.

End of the day…

balloons in Mini Cooper

It’s always a win to pay off a car early and own the vehicle outright. The main benefit – not having a lender reach into your bank account each week for repayments. Additionally, your credit history will appear sharp and shiny, raising your chances of approval for higher loan amounts and lower interest rates.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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