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How To Pay Off a Car Loan Faster

How To Pay Off a Car Loan Faster

Owning a car is expensive. According to Statistics Canada, the average car loan payment in 2019 was $486 per month. Over a 5-year loan term, that’s nearly $30,000 in payments.

Paying interest charges and being saddled with a monthly car payment for years can put a major strain on your finances. It limits your ability to save and invest, buy a home, or work toward other goals.

The good news? You don’t have to be stuck with decades of car payments. There are many effective strategies you can use to pay off your auto loan ahead of schedule. Doing so will save you money on interest and free up cash flow sooner.

Paying off your car loan faster has many benefits:


  • Saves money on interest charges
  • Frees up monthly cash flow sooner
  • Allows you to direct money to other goals
  • Reduces debt load which helps credit score
  • Gives sense of accomplishment

This guide will outline actionable strategies you can use right away to accelerate your auto loan payoff. With some planning and discipline, you could shave months or even years off your loan term.

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Refinance Your Auto Loan

One of the most effective ways to pay off your car loan faster is to refinance and get a lower interest rate. When you refinance, you take out a new loan to pay off your existing one. The key is to find a lender willing to offer you a lower rate than what you currently have.

Start by getting rate quotes from multiple lenders like banks, credit unions, and online lenders. Compare the interest rates and terms they can offer – focus on the annual percentage rate (APR) as this factors in fees. Even a 1-2% lower rate can make a big difference in how much total interest you pay over the long run.

When you refinance to a lower rate, more of your monthly payment will go toward the principal balance instead of interest. This helps you pay down the loan faster. Just be careful not to extend your loan term, as that may increase the total interest you pay over the life of the new loan.

Also watch out for fees like prepayment penalties on your existing loan. And know that refinancing restarts the clock on your loan term. But if you can get a substantially lower rate, refinancing can be one of the quickest ways to pay off your car loan ahead of schedule.


Make Biweekly Payments

Making biweekly payments instead of monthly payments on your car loan is an effective way to pay it off faster. Here’s how it works:

With biweekly payments, you split your normal monthly payment amount in half and pay that amount every two weeks. So instead of making one payment of $300 per month, you would make two payments of $150 each month, one every two weeks.

Over the course of a year, 26 biweekly payments equals 13 monthly payments. So by making payments every two weeks, you end up making one extra month’s payment over the year. This extra payment goes directly towards reducing your principal.

Making biweekly payments accelerates your payoff schedule because more of your payment is going to principal rather than interest each month. Paying down the principal faster means you pay less interest over the life of the loan.

Biweekly payments are one of the simplest ways to pay off your auto loan ahead of schedule. Just set up automatic payments every two weeks instead of monthly, and let the extra payments work their magic on your principal balance.


Pay Extra Each Month

Even small extra monthly payments can add up to big savings over the life of your auto loan. Paying just an extra $20-50 per month above your regular payment can shave months or even years off your payoff timeline. The key is to specify that any extra funds should be applied directly to the principal balance. Otherwise, the lender may just advance your next payment due date rather than reducing what you owe.

Whenever you make extra payments, follow up to confirm the extra money was used to pay down principal as intended. You can also request a new amortization schedule from the lender showing the updated payoff timeline based on the revised principal balance.

In addition to small ongoing monthly contributions, you can make lump sum payments whenever possible from one-time windfalls. Putting tax refunds, birthday money, bonus checks, or any other extra cash toward the principal is an easy way to knock down what you owe in a big way. Even an extra $500-1,000 whenever possible can slash months off your loan term.

The key is consistency. Making extra principal-only payments routinely, even in small amounts, plus throwing any spare cash at the balance whenever possible, is one of the most effective ways to pay off your car faster and for less. Just be diligent about specifying extra payments should go to principal, and follow up to verify that they did.


Use a Debt Snowball

The debt snowball method is an effective strategy for paying off multiple debts faster. With this approach, you list out all your debts from smallest balance to largest, regardless of interest rate. Then, you pay the minimum payment on all debts except the one with the smallest balance.

You put any extra funds toward fully paying off that smallest debt first. Once you’ve paid it off completely, you take the money you were putting toward that debt and apply it to the next smallest debt.

This creates a snowball effect, freeing up more money to put toward debts as you knock out each one. The small victories help build momentum and motivation to keep attacking the next debt.

The debt snowball method helps you eliminate accounts quickly, reducing the burden of multiple monthly payments. And being able to focus on one debt at a time makes the payoff process more psychologically manageable.

The key is consistency and discipline, sticking to the plan until every debt on your list is gone. The debt snowball is most effective when you channel all your extra money toward hitting your smallest debt with full force. Once that debt is conquered, move on to winning the next battle, keeping up the intensity.


Explore Assistance Programs

If you’re struggling to make your monthly car payments, it’s worth exploring whether your lender offers any assistance programs that could provide some temporary relief. Many credit unions and auto lenders understand that financial hardship can arise unexpectedly, and they may have options to lower or defer your payments for a limited period.

For example, some lenders allow you to make interest-only payments for several months to reduce the monthly burden. Others will let you defer payments entirely for a short time. This can provide much-needed breathing room in your budget so you can get back on your feet financially.

Before pursuing this route, carefully review the terms and eligibility requirements for assistance programs. Make sure you understand any costs or consequences, like accrued interest during a deferred payment period. Also confirm that accepting assistance won’t negatively impact your credit score.

Assistance programs are intended as short-term solutions, so have a plan to resume normal payments as soon as possible. Avoid relying on payment deferrals repeatedly, as this will extend the loan term and increase your total interest costs over time.

The key is communicating early with your lender if you foresee struggles with making payments. They’ll be able to explain all of your options, including any available hardship assistance programs. This can provide much-needed flexibility and peace of mind when money is tight.


Make Lump Sum Payments

Whenever you come into extra money like a bonus, tax refund, gift, or inheritance, consider putting some or all of it toward your auto loan principal. Lump sum payments are one of the most effective ways to pay off your car faster and reduce the total interest you pay over the loan’s term.

For example, if you put a $1,000 windfall toward your principal, that’s $1,000 less that interest accrues on. The more of the principal you can pay off upfront, the less your balance will be accruing interest each month.

Call your lender to find out the procedures for applying lump sum payments specifically to the principal. Often you’ll need to mail a check with instructions to apply it directly to the principal. Some lenders may let you make such payments online or over the phone as well.

The key is ensuring extra funds go toward the principal, not just the next month’s payment. That way you get the full benefit of reducing your overall interest charges.

Aim to put any amount of unexpected extra funds, whether $100 or $1,000, toward your principal to chip away at your balance faster. When you get in the habit of targeting windfalls to your car loan, you can shave months or even years off your payoff timeline.


Build Payment Cushion

Budgeting to pay a little more than your minimum payment each month builds a cushion that lets you withstand income fluctuations while still paying extra. Even setting aside an extra $20-50 can make a difference. This ensures you have some wiggle room if you face a month where money is tight.

Automate the extra payment amount so it happens without you thinking about it. Treat that higher payment as your new normal. If you get a tax refund or bonus at work, increase the automated extra payment for a couple months with that windfall before scaling back to your baseline.

Building this cushion takes discipline, but prevents you from skipping extra payments at the first sign of financial stress. And you’ll find that extra amount gets easier over time as your budget adapts. Before you know it, you’ve paid off a big chunk of principal without hardship.


Earn Side Income

Taking on a side hustle or gig work is a great way to earn extra income that can be put toward paying down your auto loan principal faster. There are now many apps and websites that make it easy to find flexible side jobs that work with your schedule.

Some popular options include ride sharing with Uber or Lyft, grocery delivery through Instacart or Shipt, package delivery with Amazon Flex, and running errands with TaskRabbit. You can choose which jobs to take and when you want to work. The extra income from just a few hours per week or month can make a big dent in your auto loan.

Freelance sites like Upwork, Fiverr, and Freelancer also connect skilled workers with freelance gigs in areas like programming, writing, design, and more. Or you can monetize a hobby or talent, like selling handmade crafts on Etsy or offering music lessons. The key is finding a side gig that fits your skills and availability.

Setting up direct deposit from your side income straight to your auto loan is an easy way to ensure those funds go toward paying down principal. And since gig work tends to pay quickly, you can rapidly make progress on debt repayment through a side hustle.


Cut Discretionary Expenses

One of the best ways to find extra money to put toward your car loan principal is to cut back on discretionary spending. Take a close look at your monthly budget and identify areas where you may be spending on wants rather than needs.

For example, dining out, entertainment, hobbies, and travel may be nice to have but aren’t essential. Try cooking more meals at home, limiting nights out, reducing hobby purchases, and taking local “staycations” instead of more expensive vacations. Even small changes like making your morning coffee at home rather than stopping at the cafe can add up.

Aim to cut back discretionary expenses by 10-20%, if possible. Be selective in determining what brings you joy versus what may be habit or impulse purchases. Redirect those savings directly to extra principal payments on your car loan.

Beyond discretionary purchases, also look for ways to trim household bills. Seek out lower cost insurance, cell phone plans, cable packages, gym memberships, and subscriptions that still meet your needs. Utility bills can sometimes be reduced through more efficient usage. Again, put those extra savings toward your car loan payoff.

While it may require some sacrifice in the short term, cutting discretionary expenses allows you to make faster progress on debt payoff. Evaluate needs versus wants in your budget and funnel the savings to your top financial priority – becoming car loan debt free.


Downsize Your Lifestyle

One effective way to free up more money to put toward your car loan is to downsize your lifestyle and reduce your regular expenses. Many people spend a significant amount on housing, transportation, entertainment, and other discretionary costs without realizing how much it adds up. Reducing your expenses in these areas can allow you to allocate those savings toward extra debt payments.

Consider downsizing to a smaller living space, getting a roommate, or moving to a less expensive neighborhood. Even a couple hundred dollars a month in rent savings can make a big difference. Evaluate public transit options or switch to a more economical used car to reduce transportation costs. Cut back on dining out, vacations, memberships, and other entertainment expenses. Every dollar not spent is another dollar you can put toward your top financial priority – paying off your car loan.

The key is to carefully look at your monthly budget and identify areas where you can reasonably trim expenses. Avoid depriving yourself, but recognize the short-term sacrifice will pay off exponentially when you become debt free faster. The lower your cost of living, the more money you’ll have available to accelerate your car loan payoff. With a diligent effort to downsize your lifestyle, you may be surprised at how much you can divert toward your auto loan principal each month.


Sell Unneeded Assets

One way to come up with extra cash for your car loan is to sell stuff you no longer use. Take an inventory of your home and make a list of items you could potentially sell. This may include:


  • Old electronics – Laptops, tablets, phones, gaming systems, etc.
  • Unused furniture – Dining sets, bedroom sets, individual pieces like chairs or tables
  • Sports/hobby gear – Golf clubs, camping equipment, musical instruments
  • Jewelry and accessories – Watches, purses, designer sunglasses
  • Collectibles – Coins, stamps, trading cards, figurines


Research the current market value for your items so you can price them competitively. Good places to sell include Craigslist, Facebook Marketplace, OfferUp, eBay, and consignment shops. Make sure to take clear photos and provide detailed descriptions.

As the items sell, use the profits to make extra lump sum payments toward your auto loan principal. Even a few hundred dollars from clearing out unused possessions can make a dent. And shedding clutter helps simplify your life too!


Pick Up a Part-Time Job

Taking on a part-time job during evenings or weekends can provide a nice income boost to put toward your car loan principal. The key is to be disciplined about allocating that extra money directly toward extra debt payments. Options like food delivery driving, retail work, waiting tables, or freelancing can allow you to control your schedule and pick up extra shifts as needed. Even earning an extra $200-300 a month could make a big dent. Just be mindful of burnout working too much. View that side income as temporary while you get out of debt, then you can scale back the extra work. The key is staying focused on putting every extra dollar toward the car loan until it’s paid off.



Paying off your car loan ahead of schedule can help you save a significant amount in interest charges. This allows you to free up cash flow sooner and put your money toward other financial goals.

As we’ve covered, making biweekly payments instead of monthly payments ensures you make an extra month’s payment over the year. Even small amounts of $20-50 extra per month can make a difference when paid consistently. Lump sum payments from tax refunds or other windfalls are also hugely impactful.

Refinancing, using a debt snowball, and exploring lender assistance programs can provide further acceleration. Adjusting your lifestyle to cut discretionary expenses, earn side income, and downsize where possible gives you more cash flow to route toward aggressive loan repayment.

The earlier you can pay off your auto loan, the more money you’ll save on interest and the sooner you can allocate those funds elsewhere. Use the strategies outlined here to formulate a payoff plan that works for your unique situation.

With focus and discipline, you can become car loan debt-free faster than you realized. The financial freedom you gain makes the effort incredibly worthwhile.

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Questions About Paying Off a Car Loan Faster

**Refinancing your car loan is one of the best ways to pay it off faster in Canada. By qualifying for a lower interest rate, you can significantly reduce your monthly payments, allowing you to pay more towards the principal loan balance each month. Many Canadian lenders like banks and credit unions offer competitive rates to refinance auto loans.**


To get started:


– Check your credit score and report to ensure you qualify for the best possible rate


– Research lenders and compare interest rates and terms. Apply to multiple lenders for quotes


– Make sure refinancing fees don’t outweigh interest rate savings


– Review new loan terms and only refinance if payments will be lower or loan will be paid off sooner


Refinancing can help you pay off your car years faster and save thousands in interest costs. Just be sure to shop around for the best possible rate for your situation.

**Making biweekly instead of monthly car loan payments can help you pay off your auto loan much faster in Canada. Since there are 52 weeks in a year, making 26 half-payments annually equates to an extra month’s payment that goes straight to reducing your principal loan balance.**


Benefits include:


– Paying your loan off faster means saving money on total interest costs


– Biweekly payments make budgeting easier since it aligns with getting paid every two weeks


– Smaller payment amounts may be more manageable than one large monthly payment


– Accelerates when you own your vehicle outright with no more loan payments


Splitting a monthly payment in half and paying every two weeks takes discipline, but is one of the simplest ways to become debt free faster in Canada. Set up automatic payments with your lender to make the process easy.

**Experts recommend spending no more than 10-15% of your total monthly gross income on auto loan payments and associated costs like fuel and insurance in Canada.**


Aim to stay on the lower end of a maximum 15% whenever possible. If your car expenses exceed 20%, you run the risk of payment stress and missing bill payments.


Remember to factor in additional ownership costs beyond just your loan payment too:


– Gas for commuting and driving

– Maintenance like oil changes and tire replacements

– Insurance payments

– Registration, licensing, taxes


The total should still not consume more than 15% of your pay. Spending less gives you more room in your budget to save money and pay off debt faster.

**Yes, making one or more lump sum payments on your auto loan can significantly speed up how fast you pay it off in Canada. This lump sum goes directly towards your principal loan balance, reducing the total amount you owe.**


Benefits of large one-time payments include:


– Paying less interest over the life of your loan, saving you money


– Potentially moving up the date your loan will be paid in full


– Paying off your car faster improves cash flow without a monthly bill


– Allows you to qualify to remove physical damage insurance, further reducing costs


Before making extra payments, review loan terms to ensure there are no early payment penalties. Paying a large chunk at once rather than small increments works to your advantage by making a bigger dent in your overall auto loan.v


**When applying to refinance your auto loan with a new lender in Canada, there are several key documents needed to qualify and complete the application:**


– Proof of income – Recent pay stubs, tax returns, bank statements


– Government-issued ID – Driver’s license, passport, etc.


– Existing auto loan details – Account number, monthly payment, APR, balance


– Vehicle information – Make, model, year, mileage


– Insurance documents – Policy declaration page


Having this information readily available when you apply speeds up the process. Many lenders allow uploading documents directly during an online application. Check if the lender requires originals or copies.


Getting pre-approved makes the refinancing process easier once you select the best loan offer. Rates and terms may vary, so apply with multiple Canadian lenders to compare.

**Many Canadian lenders provide skip-a-payment promotions during the holiday season or summer months. This allows borrowers to forgo making one monthly payment without negatively impacting your credit score or loan terms.**


Here’s how to take advantage:


– Contact your lender to see if a skip payment offer is available


– Review eligibility requirements like being current on your loan


– Understand associated fees – usually around $50 per skipped payment


– Set a reminder to budget for a double payment the following month


While skipping a payment gives you a month break from your auto loan bill, interest still accrues. Make sure to specifically request any skipped payment amounts go directly paying down your principal balance. This ensures you remain on track paying your car loan off faster in Canada.

**Only paying the minimum amount due on your auto loan obligation each month in Canada should be avoided. This approach extends your loan term significantly, increasing the total interest paid over the life of the loan.**


Drawbacks include:


– Paying far more interest costs over a longer period


– Remaining underwater on your loan for many years


– Potentially still owing money when it comes time to sell your vehicle


– Missing opportunities to pay your car off faster


Paying more than the minimum required is critical. Even an extra $20 or $50 per month above the minimum makes a difference long term. Develop a budget that allows funds to be allocated specifically for accelerated car loan payments each pay period.

**The most effective approach when budgeting extra funds to pay down your auto loan quicker in Canada is implementing automated transfers to a dedicated savings account. This ensures available money doesn’t end up getting spent elsewhere.**


Here are some top tips:


– Setup an auto-transfer from each paycheck to a separate high-interest savings account


– Use percentage-based transfers, like 5% of net income, rather than fixed dollar amounts


– Allow contributions to accumulate for a few months and make quarterly lump sum payments


– Increase the auto-transfer percentage incrementally as income rises


Automating the process of budgeting extra cash to pay above your normal car payment takes the effort out of manually having to allocate each month. Let your bank or credit union handle the heavy lifting.

**Once you have at least 20% equity in your vehicle secured by an auto loan in Canada, you may qualify with your lender to cancel any GAP insurance you no longer need. This reduces monthly costs and enables faster loan payoff.**


Here’s how to potentially remove GAP:


– Confirm your loan balance and vehicle current value

– Determine if you have over 20% equity based on value versus loan amount

– Contact lender to request they appraise current equity

– Provide documentation like valuation reports to prove equity position

– Notify insurance company if lender approves dropping GAP coverage


Removing unnecessary policy add-ons like GAP insurance also helps pay off debt faster by minimizing the outflow each month. Just make sure primary coverage amounts remain adequate as vehicle value depreciates annually.

**While paying off your auto loan quicker saves on interest expenses, there can be some potential drawbacks to be aware of if attempting to rush the process in Canada:**


– Aggressive payments may leave you cash poor or unable to address other priorities


– Could tempt you to acquire additional high-interest debt like credit cards


– Missing investment growth opportunities with extra funds


– Overextending if you lose your income stream unexpectedly


Finding the right balance is key. The faster you pay off debt the better, but not at the expense of living costs or destroying your savings cushion. Set a realistic accelerated payment schedule you can maintain without financial duress for the long run.

**The best way to avoid having “extra” money accidentally get spent instead of being put toward paying off your auto loan faster is by immediately transferring any funds like an inheritance or bonus directly to the debt.**


Tips that can help include:


– Automate transfers from checking account to car loan the day funds are received


– Ensure you do not have debit card access linked to the account receiving payments


– Speak to your lender about the best way to allocate unexpected lump sums


– Treat the money as if it is already spent with no temptation to utilize elsewhere


Eliminating the ability to access or see windfall money that you have earmarked for debt reduction ensures you stick to your faster payoff plan. Out of sight, out of mind.

**Getting pre-approved for auto loan financing at the lowest possible interest rates before visiting dealerships gives you greater negotiating power when purchasing used vehicles with cash in Canada.**


Here are some tips:


– Check credit reports and scores then address any issues


– Shop lenders and apply for pre-approval letters


– Understand factors that determine loan rates like credit, income, terms


– Compare multiple pre-approvals to leverage the best loan offer


By having guaranteed financing at a low rate already secured, you can better focus negotiations with dealers on just the purchase price of any used car. This saves thousands over the full loan term.

**Yes, arranging for automatic payments towards your auto loan principal, in addition to the minimum amount due each month, can help you pay off your car faster by ensuring extra funds consistently get applied.**


Benefits include:


– Creates a forced savings habit of paying extra automatically


– Eliminates having to manually allocate surplus money each month


– Provides assurance that accelerated payments remain on track


Check with your lender to see if they allow automatic transfers above the monthly amount due specifically towards principal only. This guarantees the greatest amount of interest gets avoided by paying down the loan balance quicker in Canada.

**After consistently making on-time payments for a period of 12 months or longer in Canada, most lenders will allow removing a previously required co-signer from your car loan provided you still meet underwriting requirements.**


To start the process:


– Request documentation from lender showing payment history

– Provide updated financial information like income verification

– Get approved independently for a loan of equal value to current balance

– Complete new application and close loan in only your name


Having a co-signer released improves cash flow flexibility to pay extra each month. Just be sure your income and credit still qualify for the loan independently before removing a co-signer.

**Plugging your current car loan details into an auto loan refinancing calculator can provide a clear comparison to paying additional principal payments in Canada. This illustrates which option saves more on interest.**


To analyze:


– Document current balance, rate, months left


– Estimate new rate and fees through refinancing


– Calculate monthly savings from lower rate


– Compare to paying extra $100 or $200 monthly


Crunching the numbers this way provides you mathematical proof if refinancing or accelerating payments helps pay your loan off quickest. Maximizing interest savings over the full loan term should guide your decision.


**Refinancing an existing auto loan into another person’s name in Canada involves providing the new lender with similar documentation as getting original financing, along with a few extra items.**


Documents required generally include:


– Application from new borrower with income verification


– Driver’s license and SIN documentation for new borrower


– Most recent statement showing loan balance


– Signed release of interest from previous owner


– Completed vehicle transfer paperwork


The lender will also appraise the vehicle and determine maximum loan amount to be refinanced based on its value. Having a clear title with no other liens makes for an easier transition process.

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