There are six common ways to finish a car loan early. We ran all of them on the same $24,000 loan at 7.5% over 60 months, so you can see exactly how many months and how much interest each one saves before you choose.
Every dollar you pay above the required payment goes straight to the principal, and every dollar of principal you remove stops collecting interest for the rest of the loan. That is the whole trick. The six methods below are just different ways of getting more money to the principal, and earlier.
Follow along: open the Car Loan Payoff Calculator. It starts with the same loan used here: $24,000 left, 7.5% APR, 60 months, a regular payment of $480.91. Paying as scheduled costs $4,855 in interest. Change any field to try your own loan.
Before you start: two checks
- Is the loan simple interest? Most auto loans are, which means interest is charged on the balance that is left, so paying it down early saves money. A few subprime loans use precomputed interest (the “Rule of 78s”), where extra payments save much less.
- Is there a prepayment penalty? Look for a “prepayment” clause in your contract. Most loans have none, but if yours does, compare the penalty with the interest you would save.
When you send extra money, tell the lender to apply it to principal only. Otherwise some lenders treat it as an early payment of next month’s installment, which saves nothing.
The six ways, side by side
| Method (same $24,000 loan) | Paid off in | Months saved | Interest saved |
|---|---|---|---|
| Pay as scheduled | 60 months | – | – |
| Round the payment up to $500 | 58 months | 2 | $231 |
| Biweekly half payments | 55 months | 5 | $461 |
| $2,000 lump sum now | 55 months | 5 | $862 |
| $100 extra every month | 48 months | 12 | $1,005 |
| $200 extra every month | 40 months | 20 | $1,660 |
| $100 extra a month + $2,000 now | 44 months | 16 | $1,671 |
Refinancing, the sixth option, works differently: it lowers the rate rather than paying faster. It is covered below.
1. Pay a fixed extra amount every month
This is the most effective method for most people because it is steady. An extra $100 a month on our loan cuts a full year and saves $1,005. An extra $200 cuts 20 months and saves $1,660. Set it up as a separate automatic payment so you don’t have to remember it.
2. Round up your payment
Paying $500 instead of $480.91 is only $19.09 more a month, yet it ends the loan 2 months early and saves $231. Rounding up is a painless start if a bigger extra amount doesn’t fit your budget yet.
3. Switch to biweekly payments
Paying half your payment every two weeks means 26 half payments a year, which is 13 full payments instead of 12. On our loan that ends it 5 months early and saves $461. It works only if the lender applies each half payment when it arrives. Some lenders hold it until the second half comes in, and some third-party “biweekly programs” charge a fee for the service. If yours does either, add one-twelfth of your payment to each monthly payment instead: the calculator models biweekly exactly that way.
4. Put a lump sum on the loan
A tax refund, bonus or the proceeds from selling something can go straight onto the balance. $2,000 paid today saves $862 and 5 months. $5,000 saves $1,965 and 14 months. Timing matters: the same $2,000 paid two years from now saves only about $470, because the interest it would have prevented in those two years has already been charged.
Enter it in the calculator’s “One-time payment now” field. Combined with $100 extra a month, the loan ends in 44 months and saves $1,671.
5. Refinance to a lower rate
If your credit has improved or rates have fallen since you bought the car, a new loan at a lower rate cuts the interest without paying more each month. Refinancing our $24,000 from 7.5% to 5.5% over the same 60 months lowers the payment to $458.43 and the total interest to $3,506, a saving of about $1,350. Keep paying the old $480.91 and you finish sooner still.
Watch for three things: fees for the new loan, a longer term (a lower payment spread over more months can cost more in total), and any prepayment penalty on the old loan. Compare offers with the Loan Calculator.
6. Don’t stretch the loan in the first place
The cheapest way to pay off a car loan faster is to choose a shorter term when you buy. A 72- or 84-month loan has a lower payment but charges interest for longer, and the car can be worth less than you owe for years. If you’re about to buy, run the 48- and 60-month versions through the calculator before signing.
Is paying off a car loan early worth it?
Paying off a loan at 7.5% earns you a guaranteed 7.5% on that money, which is hard to beat without taking risk. But extra payments are hard to get back if you need cash later. A sensible order for most people:
- Keep an emergency fund, so a repair or a gap in work doesn’t go on a credit card.
- Take any employer retirement match. It is usually a better return than any loan rate.
- Pay off higher-rate debt first, such as credit cards. The debt snowball vs avalanche guide shows how to order several debts.
- Then compare your car loan’s rate with what your savings earn. With a 0% or very low promotional rate, paying on schedule and keeping the cash usually makes more sense.
Paying off an installment loan can cause a small, temporary dip in a credit score because an open account closes. It is rarely a reason not to save the interest.
Frequently asked questions
What is the fastest way to pay off a car loan?
Paying as much extra as you can every month, starting now. On a $24,000 loan at 7.5% over 5 years, an extra $200 a month finishes it 20 months early and saves about $1,660 in interest. A large lump sum early on is the next most powerful step.
Is it better to pay extra monthly or make a lump sum?
Whichever puts more money against the balance sooner. $100 extra a month for the life of the loan beats a single $2,000 payment in our example, because it adds up to more principal. But a lump sum paid today beats the same lump sum paid in two years.
Do biweekly car payments really save money?
Yes, a little: paying half the monthly amount every two weeks adds up to one extra monthly payment a year. In our example that finishes the loan 5 months early and saves about $460. Check that your lender applies the half payments when they arrive, not at the end of the month.
Should I pay off my car loan or invest?
Paying off a 7.5% loan is a guaranteed 7.5% return. Investments may earn more on average but with risk. Most people first build an emergency fund, take any employer retirement match and clear higher-rate debt such as credit cards, then compare the loan rate with what they expect to earn.
Can I pay off my car loan early without a penalty?
Usually yes: most auto loans use simple interest and have no prepayment penalty. Check your contract for a “prepayment” clause or precomputed (Rule of 78s) interest, and ask for a payoff quote before sending a large payment.