Taking out a car loan is a serious expense that can affect your finances for years to come. If you’re looking for ways to make car repayments easier to handle, consider lowering your loan repayment amount. Check out the following ways you can reduce your car loan repayments:
Choose an extended car loan term
Car loans usually have a term of three to five years. Stretching your loan term out a longer period could minimise your regular repayments as you’re paying less of the principal amount every month. This can help you manage your car loan repayments better.
The drawback of choosing a longer car loan term is the total cost. With an extended car loan, you’ll likely pay more interest over the life of the loan. Before deciding on a loan term, it’s best to calculate how it will affect the total loan cost.
Make fortnightly or weekly car loan repayments
Instead of one big monthly payment, having smaller but more frequent fortnightly or weekly car loan repayments could be more manageable. Having a fortnightly or weekly car loan repayment scheme can also reduce the overall cost of your loan.
Review your finances carefully to see how a fortnightly or weekly repayment will affect your budget. Also, consider the total cost of the loan and figure out if the potential savings are worth changing your car loan repayment frequency.
Put down a substantial car loan deposit
One of the best ways to reduce your car loan repayments is by borrowing less. The bigger your deposit, the smaller your car loan becomes.
Most car loans don’t ask for a deposit but even so, it may be a good idea to put money towards a down payment. Not only will you be borrowing less from the lender, but you’ll also lower the total cost of your loan.
If you can’t provide a large down payment, any amount can still help lower your car loan repayments. Whether you’re providing a 20%, 10% or even 5% down payment, it will still go towards reducing the principal loan amount and can help you save more over your loan term.
Consider adding a balloon payment
A balloon payment is a portion of the car loan paid at the end of the loan term. Instead of paying the full value of the principal loan amount, you’ll only pay the remaining amount. For example, you borrow $25,000 from the lender with a balloon payment of $5,000. Your car loan repayments will be calculated using the difference between the loan amount and the balloon payment, in this case, it comes to $15,000.
Take note, that your balloon payment includes accrued interest. This means you may pay more interest with a balloon payment option.
Refinance your car loan
If you already have a loan, you can try refinancing it for another car finance that has a much lower rate. When you take out a car loan refinance, you’re essentially closing out your existing loan and opening a new one with a different lender, who may have more favourable rates and features. If you refinance your car loan with lower interest rates, you could reduce your repayments significantly.
Tips to pay off your car loan faster
Another way to save on interest and reduce your car loan repayments is by paying off your car loan early. Chipping away the principal amount could lessen future repayments and minimise interest costs. Consider the following tips when making car loan repayments:
- Exceed your car loan repayments. Round up your repayments to the nearest $50 or $100 mark. Paying a little more each repayment period adds up quickly over time. Talk to your lender or check your car loan agreement to see if extra payments are permitted.
- Make additional payments. It could be a good idea to make more payments in addition to your regular repayments. This can help you reduce the principal amount owed and lessen interest.
- Never skip payments. Skipping payments or making late payments will not only affect the length of your car loan but also negatively impact your credit score. This is why it’s crucial to figure out a loan repayment schedule that fits your financial needs.
Get the best car finance at CarLoans.com.au
Want to find the perfect car loan with manageable repayments, low interest rates, and favourable loan terms? Get in touch with the expert brokers at CarLoans.com.au today! Get a quote or call 1300 889 669 for more information.