fbpx

How to Pay Off Your Car Loan Faster

Learn about how you can pay off your car loan faster and the amount you can save while doing so with Savvy today!
Published on December 15th, 2020
  Written by 
Thomas Perrotta
Thomas Perrotta is the managing editor of Savvy. Throughout his time at the company, Thomas has specialised in personal finance, namely car, personal and small loans, although he has also written on topics ranging from mortgages to business loans to banking and more. Thomas graduated from the University of Adelaide with a Bachelor of Media, majoring in journalism, and has previously had his work published in The Advertiser.
Our authors
   Reviewed by 
Bill Tsouvalas

Reviewer

Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors



Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.
Car Insurance Banner - Two backpackers eating while sitting in the boot of their car in a forest

At Savvy, our mission is to empower you to make informed financial choices. While we maintain stringent editorial standards, this article may include mentions of products offered by our partners. Here’s how we generate income.

Car loans can be a crucial financial tool to help you purchase the vehicle you’re after, but the longer you have them, the more you’ll pay overall. That’s why it’s important to know about how to pay off your car loan faster. Learn about key tips for clearing your debt sooner and how much they can save you right here with Savvy today!

Choose a shorter car loan term

First and foremost, perhaps the simplest way to ensure you pay off your car loan quickly is to choose a shorter car loan term from the outset. This won’t necessarily be an option for everyone, as shortening your term means your repayments will end up being more expensive.

However, doing so will not only clear your debt quicker, but also save you money overall. Here’s how different terms can help you save:

Loan term Repayments Total interest Total saving
Five years
$602
$6,069
N/A
Four years
$726
$4,818
$1,251
Three years
$934
$3,595
$2,474
Two years
$1,350
$2,400
$3,669

Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.

For only around $30 extra per week, you could save $1,250 overall and have your loan paid off a year earlier. The jump to three years is steeper but allows you to reap even more rewards.

Make additional repayments

Another way to pay off your car loan sooner is to make additional repayments towards your debt. This can be from as little as $50 per month to doubling your minimum required instalments. The more you pay, the faster you’ll have your loan in the rear-view mirror and the more you’ll save. The following table demonstrates this:

Loan term Extra payment Total payments Total interest Total saving Total loan term
Five years
$0
$602
$6,069
N/A
Five years
Five years
$100
$702
$5,019
$1,050
Four years, two months
Five years
$250
$852
$3,994
$2,075
Three years, four months

Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.

However, it’s important to note that many car loans come with early break fees, which could reduce or sometimes cancel out the benefit of making additional payments. Check with your lender if you’re unsure about whether they charge fees for early settlement.

Round up your repayments

Rounding up your repayments follow the same principal as additional repayments, but often on a smaller scale. This may mean you’re rounding up to the nearest $50 or $100, which can still make a difference. Using the same loan example as in the above table, this is how rounding up can help you pay off your car loan faster and save:

Loan term Extra payment Total payments Total interest Total saving Total loan term
Five years
$0
$602
$6,069
N/A
Five years
Five years
$48
$650
$5,514
$555
Four years, seven months
Five years
$98
$700
$5,037
$1,032
Four years, three months

Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.

Again, it’s important to check whether early repayment fees will impact your loan before you start rounding up your payments.

Refinance to a car loan with a shorter term

Alternatively, you could refinance your car loan to one with the same or a different lender in order to shorten your term. You can look at the following table to see how refinancing your loan after two years can help you save:

Loan term Balance after two years Interest after two years Refinanced term New repayments Total interest Total saving
Five years
$19,326
$3,753
N/A
$602
$6,069
N/A
Five years
$19,326
$3,753
Four years
$870
$5,299
$770
Five years
$19,326
$3,753
Three years
$1,677
$4,547
$1,522

Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.

Like additional payments, refinancing your loan could result in additional costs due to early break fees, so it’s worth weighing up the benefits of refinancing against the charges you stand to pay for exiting your current loan early.

Increase your repayment frequency

Although you may not realise it, increasing your repayment frequency from monthly to fortnightly or weekly can also help you save and, crucially, may shorten your loan term. This is because while there are 12 months in a year, there are 26 fortnights and 52 weeks, both of which add up to approximately 13 months’ worth of payments per year.

This won’t always reduce the length of your loan term, but paying your instalments on a more regular basis where possible is beneficial for your car finance deal.

Balloon payments: can they help you pay off a car loan faster?

A balloon or residual payment is essentially a deposit that you pay at the end of your loan term, instead of the beginning. These can be added to car loans to reduce the cost of monthly instalments, but they actually cost more money overall. Crucially, though, balloon payments don’t directly help you pay your loan off at a faster rate.

This feature increases the cost of car loans because of the way interest is calculated. It’s based on the ongoing balance of your loan, which reduces to $0 over your term. However, by adding a balloon payment of $3,000, for instance, your balance will decrease to $3,000 instead.

This means your loan’s balance will fall more slowly, which in turn means the interest charged on your repayments will also stay higher for longer. The table below shows how different balloons can affect the cost of your loan:

Balloon payment Repayments Total interest Total saving
$6,000
$519
$7,105
N/A
$3,000
$560
$6,587
$519
$1,500
$581
$6,328
$777
$0
$602
$6,069
$1,037

Calculations based on a $30,000 car loan repaid monthly over five years with a 7.50% p.a. interest rate.

As you can see, not adding a balloon at all can save hundreds of dollars compared to having one worth even 5% of your loan amount.  

What to consider before paying off your car loan faster

  • Potential savings: think about how much you can save by paying off your loan more quickly with one of the methods listed above.
  • How it affects your budget: as shown in the above tables, shorter loan terms usually result in higher repayments, so it’s important to not put your budget under too much stress.
  • Any extra fees charged: if you’re paying your loan off ahead of schedule, always check what fees will be charged, if any.
  • Know your loan inside and out: being across the terms and conditions of your loan is vital when it comes to considering your options for paying it off faster.
  • Compare loan offers: constantly comparing offers on the market will help you keep an eye out for good deals, such as those which could help you pay off your loan sooner.

Did you find this page helpful?

Yes
No
Thanks for your feedback!

This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for car loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

In this article

Share this article

Share on facebook
Share on twitter
Share on linkedin
Share on email
Share on pinterest

Looking for a car loan quote?

Compare over 40 lenders with Savvy and save on your next car purchase.

* Terms and conditions and lending criteria apply.

Smart money saving tips

Subscribe to our newsletter.

By subscribing you agree to our privacy policy

Related articles

Top 5 Utes in Australia

5. Toyota Hilux The Toyota Hilux is Australia’s highest selling utility vehicles, now in its eighth-generation. The current and “unbreakable”...

Looking for a car loan?

Explore a range of car finance options with Savvy and get the wheels in motion today. 
Car Insurance Banner - Two backpackers eating while sitting in the boot of their car in a forest

We'd love to chat, how can we help?

By clicking "Submit", you agree to be contacted by a Savvy broker and to receive communications from Savvy which you can unsubscribe from at any time. Read our Privacy Policy.