Qualifying for a car loan is just the beginning. You now have a number of years to manage payments until your car is paid for. Fortunately, car payments are a part of life like rent or mortgage, utilities or food. However there are things that can help you manage your loan and make living with it a little easier.
Match loan payments to salary payments
When you set up your car loan, set your payment schedule to match your salary. So if you’re paid every two weeks, request bi-weekly payments. If you’re paid monthly, pay your car loan monthly. It makes servicing the loan easier in the long run so it well worth doing.
Set up recurring payments
Life is busy and full of distractions so set up a recurring payment with your bank. Match the payment to your salary and have it go out as quickly as possible to avoid it being spent on other expenses. Automatic recurring payments means you will never miss a loan payment which helps protect your credit score and means that no matter how busy life gets, your obligations are already taken care of.
Recurring payments are definitely the option we would recommend but if you cannot set one up, at least set a calendar reminder on your phone or computer to prompt you to make the payment. Make sure you can still make the payment when you’re on vacation or if you get ill, just in case. Late payments will affect your credit score so they need to be avoided at all costs!
Overpay when you can
Most car loans will offer the ability to overpay. That may be limited to a maximum percentage per year or may not be. Either way, if you find yourself in the money, make an overpayment. This will not only pay your loan off early but will also save you money on interest. Depending on the sum and loan term, that could work out to quite a saving!
This is especially true if you take a car loan over a longer term than usual. Interest is compounded over the time so if you reduce the term, your interest payments reduce too. Depending on how much you borrow and overpay, this could make quite a saving.
Bank a couple of loan payments for just in case
If your circumstances allow, build up a couple of car loan payments and keep them somewhere safe to make sure you always have money to pay. Delays in salary, loss of a job, weddings, redundancy and all kinds of things can get in the way of making a payment. Having a couple of months’ payment already banked means you have time to reassess your situation without missing a payment.
If you need to talk to the lender about alternative arrangements, taking a payment holiday or changing the terms of your loan, they will be much more receptive if you have made every payment to date on time!