How to Pay off a Car Loan Faster in Canada: 5 Helpful Tips
How to Pay off a Car Loan Faster in Canada: 5 Helpful Tips
Posted on October 7, 2022
There was an expression that there are two types of debt, good and bad debt. We believe that too much of anything can lead to problems, and this includes debt. This brings people to ask whether they should pay off a car loan faster in Canada or keep it as good debt.
While everyone has financial obligations, owning a car is a necessity in Canada, but it doesn’t come cheap.
Refinancing your car loan
Another way to pay off your car loan sooner, is to refinance it to a lower interest rate. This is a more involved tactic but if you are in a high-interest car loan then this approach could really save you a bundle.
To refinance a car loan in St. Catharines, you will need to apply for a brand new loan at a lower interest rate. Thankfully, interest rates are still at all-time lows but in 2022 rates will start to climb.
Lenders are more cautious so you need to make sure you have good credit to get the lowest interest rates. If your credit score is 700 or higher, you should have no problems locking down a great interest rate.
Overpaying your auto loan
If you want to pay off your Ancaster auto loan faster, you generally have three options. We hinted at them earlier but let’s cover them in a little more detail.
Overpayment each month – Increase your monthly car loan payment by a set amount each month. Ensuring that the overpayment pays the principal and not the interest should reduce the loan term. The more you overpay, the shorter the term becomes.
Lump sum overpayments – If you have a lump sum that you want to use constructively, many auto loans will allow lump sum repayments. Contact the lender and ask how you best go about making such a payment as each lender has their own rules.
Early repayment – If you have the full outstanding amount in savings, you can pay off the loan early using that. Contact the lender for a settlement figure and arrange with them to pay if off there and then.
The vast majority of standard auto loans in Ancaster will allow one or more of these options. If you have a specialist loan, bad credit car loan or something else, those rules may differ.
If in doubt, check with your lender and discuss your options.
A depreciating asset that incurs interest every month
When you buy a house, its value of it will hopefully increase or appreciate over time. While you are paying interest on the mortgage, you stand to see a return on that investment when you sell the house in the future.
With a car, you start losing money the moment the vehicle drives off the car lot. Cars are not assets, at least not in the technical sense.
They lose value or depreciate in value, so if you try to resell the car, you will get less money than what you paid for it; plus, you must service the car loan with interest on top! This is why in most cases it's a really great idea to pay off a car loan faster in Canada.
Squeezing the most out of your budget
With inflation at the highest rates it has been in a generation; you need to start looking at ways to stretch your budget.
If you are using streaming services for entertainment, consider canceling those services.
They were necessary during the pandemic when everyone was forced indoors; now that we are getting back to a new normal, you should be spending more time outside.
The time you spend consuming content on these streaming services can be used to increase your income by taking on a side hustle.
With the economy headed towards a recession, you need to have more than one source of income to protect yourself from a sudden financial shock.
One option is signing up as a Door Dash delivery person; depending on where you live and how you manage your time, you could be making well over $20/hr, plus developing time management skills in the process.
Sign up for RRSP program at work
Most employers in Canada have an RRSP program for their employees; if you have one, sign up for the RRSP withdrawal to have payments deducted from your paycheck.
This lowers the amount of tax you pay each pay period; this means there is more cash in your pocket that can go towards paying down your car loan.
Another benefit of participating in the RRSP is being able to use the tax refund in February to knock down your car loan even further.
By reducing the amount of money you owe on your car loan, your credit score is going to increase, which will help you save money the next time you need credit.
You just need to make sure that you stay focused on paying off your car loan faster in Canada being a debt-free car owner as soon as possible; your wallet will thank you over the long term.
If you need help or advice on anything to do with electric vehicles, contact Car Nation Canada to get pre-approved today, we can help!