Couple Money header image ≡ Menu

How To Pay Off Your Car Loan Faster

Learn how we got rid of our car loan with this step by step guide.

I’ve mentioned that I’ve regretted getting a car loan. I also mentioned that we are planning on not being stuck with car payments for another 5 years. If you noticed from our net worth reviews we have 2 completely paid for cars at home. We don’t make six figures, but the great news is that we didn’t need that much to pay off the car loan.

Paying off the car loan didn’t happen by accident, we had a specific plan of attack. If you’re looking at getting rid of your car loan faster, I have some tips to get you two started.

Finding Money to Pay Off a Car Loan

Right now the average car loan is around $26,000 or about $400/month. That’s quite a bit of money, especially if you have other obligations like a mortgage or childcare.  The first step in paying off the car loan is finding money in your budget. You’ve probably already heard of spending less than you earn. Let me show you how we did that exactly.

Create a Budget That Works

I will not tell you to track every penny by hand because let’s be honest – most people don’t do that. Instead I’ll recommend you use a free tool like Mint that will track your expenses for you and in 15 minutes you can create a budget that will help you reach your goals.

With Mint you can grab the data easily to see what you can adjust your spending. Here are some areas that we changed:

  • Optimized our entertainment, phone, and internet bills.
  • Upgraded our cell phone plan.
  • Switched our auto insurance company.
  • Eating out intelligently.
  • Created a debt snowball plan( and use snowflakes to speed it up).

Optimized Our Cable, Phone, and Internet Bundle

Many times the deal they advertise on TV isn’t the best deal. We called Time Warner Cable to see if they could quote a better rate. Since they didn’t, we went ahead and created own bundle with Time Warner for limited cable and high speed internet and Skype for our land line number. The monthly costs went from around $140/month to $48/month.

Upgraded Our Cell Phone Plan

When we reviewed our bills we noticed that the cell phone bill was over budget. It was due to extra charges from going over the text plan. By spending $5/month to upgrade our text plan, we saved money. For you, it may be beneficial for to look at switching cell phone carriers.

Today there are several great options to help you slash your cellphone bill even more drastically. Republic Wireless offers of the cheapest smartphone plans out there for unlimited talk, text, and data. I signed up last year and have paid only $22/month, taxes and fees included. If you’re interested in using Republic Wireless and getting unlimited talk, text, and data, then sign up today.

Switched Auto Insurance

We were able to significantly  cut our auto insurance premiums by switching providers. By using our Costco membership our car insurance premiums went from $118/month to $58/month. Since we have Executive membership at Costco, we also get free towing and jump starts included so we allowed our AAA to lapse and saved a bit more.

As you can see, we were about to save hundreds of dollars each year by looking at our car insurance options. If you’re pressed for time, but still want to shop around for the best rates on car insurance you use Go Insurance Rates. It’s extremely handy as you can get several quotes in spot and it’s free!

When you compare car insurance companies, have a copy of your current policy to make sure you’re comparing apples to apples. I’d also ask from friends what they think of their insurance. Going with the cheapest may not be the smartest option, especially if they don’t provide the service you need when you need them the most.

Eating Out Intelligently

Completely giving up on eating out wasn’t going to work for us. So instead we decide to tweak it a bit and save some money. We look for happy hour deals around town. Some places here are some great food for $5 or less and drinks are half as well. If you don’t go overboard you can have a great evening without spending a ton of money. Another great plan is checking if your city has a restaurant week where you can get appetizer to dessert at some fantastic places for $20.

Snowflaked Extra Payments into the Car Payment Schedule

With the money saved, we used it to snowflake extra payment for the loan. We automated much of it to make sure that we stay with the payment plan. We also took any small wins, like selling items on Ebay.  It didn’t matter how small the amount was, we went ahead and used our bank’s online bill pay feature to send in an extra $50 or $100 to the car loan in between payments.

In addition to the snowball payments, our tax refunds and stimulus check went to lower the principal.

Listened to Those Who Did It

Other couples have succeeded in paying off  their car loans early.  If you’re looking for some more stories to help keep you focused, here are some of my favorites:

Thoughts on Paying Off the Car Loan

I’d love to get your thoughts on cars and loans. How do you plan on buying your next car? If you’ve bought your car with cash, how did you save up for it?

Photo Credit: stevoarnold

by Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

Get Free Email Updates

Want to build you net worth together? Sign up for the community newsletter!

Comments on this entry are closed.

  1. We bought a new minivan this past summer. I negotiated a deal on it, and we paid for it in cash. Why new in this case? We plan to have 3 children and will use it for years. I am expecting #2 now and my mom is moving in with us to be our child care. My civic cannot seat 3 adults and 2 rearfacing children. It just won’t work. Also, we checked out many used minivans. It seems these vehicles get quite the workout and are not in the best shape when they get sold. I ended up biting the bullet and buying a nice minivan that had all the features I wanted. The main thing is that I had saved up a fund specifically for this purchase and did not go over my budget. :)

  2. I’m so glad you planned ahead and got the car you want with getting into debt! I wish you family well. :)

  3. This article has come at the perfect time for me. I’m so sick of having a car loan. $316 per month. When I think how great my emergency fund could be with that extra cash, or how much more I could pay on student loans (not too high–about $3,000), I am determined more than ever to pay off my loan. I bought a 2005 Toyota Corolla in March ’09 and it had 3,500 miles on it. As a relatively new graduate, I saved to put down $3500, but with my limited credit history, financing was hard to find. Eventually, i scored a loan, but at about 12%! My plan was to pay it on time each month for one year to help build my credit and then refinance through my credit union at work. I did just that in March 2010 at a 5% rate. I now have $8500 left on the car loan.
    I AM DETERMINED TO PAY IT OFF IN ONE YEAR. I’m a nurse and if i I work just one extra shift per month, I could DOUBLE my payment and pay it off. Add in my yearly bonus/pay for skills check, and taxes, I think it’s doable.
    I cannot wait to be “debt-free” since I have no credit card debt; only student loans.

    1. I’m glad this is one of your goals and I hope this post was helpful for you.

  4. I felt as though this was impossible on a part time pay of $220.00 a week and two car notes. My fiance and I both worked at the same company and both lost our jobs during a merger. I was lucky to find work and she hasn’t just yet we didn’t get unemployment (fighting the case for wrongful termination), but with a vehicle from JD BYRIDEr. Yea I know I was stupid and desperate my 2002 PT Cruiser is costing me $180.00 every two weeks plus gas and full coverage coming out to about $450.00. Then comes my fiancée’s car -2005 dodge with a not of $279.86 a month.

    These are the steps I took – first, found a studio apartment to live in with everything electric; applied for lower energey rates for being in hardship. I went from a $865.00 apartment to a $385.00 studio about $500.00 in savings a month. I then switched from Progressive to Liberty Mutual insurance, dropped in total from $189.87 each to just under $60.00. It is still a tight squeeze and a huge sacrifice, but its better then being in the streets and this gives us time to learn better money management.

  5. I’m 88 years of age and cannot invest in an IRA but have some money I would like to place in a inividual account and draw rhe interest annually. What is your advice on that?

    1. I’d recommend Mike Piper’s blog – Oblivious Investor for retirement and income advice.

  6. I have 10980 left to pay 24 months exactly on a 5 year car loan . I am paying 100 extra permonth . is this the trick ? am i doing the right thing . by paying it in the payment or should i send it seperately .

    1. Send it separately. Marked specifically, “apply to principle only”. Seriously.

  7. If you find extra money every month, why sink it in something like a car note? Just keep paying the car note as scheduled and put that extra money towards your mortgage…or invest it…idiots

    1. We’re looking at the long term Jason – paying off the car loan can help you save on interest. Once it’s paid off you have better cash flow with your family’s budget. Which you can use for investing or a mortgage. Look at the numbers – car loans usually have higher interest rates than mortgages now. Why would you put the money on the mortgage?

      Don’t be in a rush to call people idiots – it makes you look like the fool.

    2. We’re looking at the long term Jason – paying off the car loan can help you save on interest. Once it’s paid off you have better cash flow with your family’s budget. Which you can use for investing or a mortgage. Look at the numbers – car loans usually have higher interest rates than mortgages now. Why would you put the money on the mortgage?

      Don’t be in a rush to call people idiots – it makes you look like the fool.

    3. If you owe money on a car, that’ll affect how much a bank is willing to lend you to buy a house. By eliminating the car payment, you increase the amount of house you can afford. Personally, I’d rather have a nice home than a really nice car.

  8. My husband came into some inheritance money and has decided he’s going to pay off his 2010 Camry loan ($20K left at $400/month for 4 more years) and buy a 2012 something or other with a large downpayment and a smaller loan ($180/month for 4 years). I say that’s stupid and that he should just pay off the existing Camry, keep it and forget about the other dream car (and another loan). He won’t listen and its his inheritance money, but isn’t that dumb?

  9. I just landed a high paying job and am cutting my 60 month payment into 9 months and paid off. The interest rate was almost 18 % (recent credit issues last few years) and doing it this way will cut off almost ALL the interest. I havent figured out exactly WHAT my interest rate will be doing it this way but it comes out WAY better then it would have at 60 months. Id be paying over 12,000 dollars for an 8,000 dollar car. Its in great shape. Five years old with just 60,000 miles. I also dropped the “extended warranty” and that will be applied to the principal, the refund on that being $1,200.00 and also dropped the “gap insurance” having another $300.00 taken right off the principal. The basic rule of thumb i have found is they cant charge you interest on what you DONT HAVE FOR A PRINCIPAL. Will my credit union LIKE not getting any of this interest? No, id say not but i read my paperwork and it says right on my contract NO EARLY PAY OFF PENALTY. Good thing im doing this as it looks like i will need the money for GAS at almost $4.00 a gallon now!

  10. I have 3 years left on my car loan. Based on my current income and the strength of my career field, I don’t anticipate having any problems paying off that loan. The interest rate is so low that what I pay in interest per month is almost insignificant. Unlike a lot of Americans, I don’t have any other major debts like student loans, a mortgage, etc. But lately, I find myself wishing I didn’t have a car payment. it’s not as if the car loan is weighing me down. I think it’s more psychological. I just want that feeling of being free. Of course, someday I’ll buy a house and it would be nice to have extra money for that. Plus, I know lenders look at your total debt payments when deciding how much they’ll lend you. After reading this and similar articles, I’ve decided to do what I can to pay off my loan early. I may end up only saving myself an extra 6 months. But at least I’ll be spending less time in debt. I’m still forming a strategy, but I imagine it’ll involve a combination of spending reduction and applying a little extra each month to the car loan. And if, by some chance, my company does give me bonus this year, I know where it’s going.

  11. We know this feeling all too well. Especially after walking into a dealer and purchasing a brand new car for $26,000 with no money down. A couple of years ago, my husband’s car broke down and we purchase a used Honda for $4,000. What a great feeling to walk away w/out any payments. Your bundling is awesome! I will have to tell my husband about that. I would like more details as to how you created your own bundle. Also, I feel the same w/our phone. I keep running us over texts and it charges us .15 per text for overage. Something is going to need to change, but we would rather have our cellphones than a landline.

  12. My husband’s truck payment is over $600.00/month, my car payment is almost $400.00/month. That’s $1,000.00/ month, just for vehicles! Oh, I can’t wait to have no car payments!!