At a Glance

As of summer 2023, the average interest rate for an auto loan in the U.S. ranges between 11% and 22% based on credit score. If you have a car loan, paying it off early can not only save you money on interest but also offer peace of mind and a level of financial security. Here, we’ll offer strategies to help you do so. However, before you take any of the below steps, it’s important to read your loan contract and determine if there are any prepayment penalties. If so, it may not be a smart financial move to pay off your auto loan sooner.

12 ways to pay off a car loan fast:

1. Bimonthly payments

Making multiple payments per month, rather than just one, is one of the best ways to pay off debt early if you can afford it. To make this process seamless, consider setting up bi-monthly payments on autopay to ensure payments go out on time. You’ll also want to reach out to your lender and request that your money be applied to the principal (not the interest). This technique will reduce the total amount of interest you pay and will likely improve your credit score as you lower the amount owed. Plus, you’ll pay off the auto loan twice as fast.

For example, say you have a $20,000 loan at 6% APR with an initial loan term of 72 months:

Monthly Payments Bi-Monthly Payments
Payment amount $331.46 $165.73
Payments in a year 12 26
Annual amount paid $3,977.52 $4,308.98
Total interest paid $3,864.96 $3,468.43
Interest savings N/A $396.53

2. Round up your payments

If you can’t make double payments every month, even adding a few dollars to your payment will help you get out of debt more quickly. Consider rounding up your payment to an even number, i.e., from $238 to $250. Add whatever extra you can afford and adjust your budget accordingly. You just might shorten your loan term by a payment or two at the end.

Real Stories

Jacob Carter, Owner of Engine Rev Up, used a car loan to buy his dream car, a classic '68 Mustang. I refinanced that loan quicker than a hot rod at a green light, got myself a lower interest rate. Next, I employed the old 'round-up' method. Every time I had a payment, I'd round it up to the nearest hundred. If the payment was $275, I'd pay $300. Didn't seem like much each time, but let me tell you, those extra bucks started to add up. With a combination of refinancing, rounding up, and some good old-fashioned hustling, I managed to pay off that loan quicker than you can say 'zero to sixty'. Now, that Mustang's loan-free and purring like a kitten, and there's nothing quite like cruising down the highway in a car you fully own.

-- By Jacob Carter, Owner of Engine Rev Up

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3. Make one large extra payment each year

If you work in an industry where you receive an annual bonus or commission, you could use some of that additional income to make an extra payment on your auto loan each quarter or year. Again, you may need to call your lender to request that these payments go toward the principal and not the interest. Ultimately, these extra annual or quarterly payments could reduce your loan term and interest paid significantly.

4. Make a one-time balloon payment

If you have a high interest rate on your auto-loan and additional debt, you might want to consider a debt consolidation loan. You can apply for a debt consolidation loan for the total amount of all your outstanding debts and then make one balloon payment to pay off your auto loan in full. Keep in mind that this may not be possible if your auto loan has a prepayment clause.

5. Avoid missed payments

Missing payments will only extend the life of your auto loan and the interest you accrue. It will not only take longer to pay the loan, but there also may be late or missed payment fees assessed, which will slow you down and negatively impact your credit score. To stay on track, avoid making late payments or missing them altogether.

6. Refinance for a lower rate

You may have a high interest rate if you applied for an auto loan when your credit score was lower or interest rates were generally higher. But that doesn’t necessarily mean you have to pay that interest rate for the entirety of the loan. If your contract allows and your remaining balance is high enough, you may be eligible to refinance your auto loan with another lender at a lower rate. Or, if the balance is low enough, you may be able to apply for an unsecured personal loan to pay off your vehicle in full.

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For example, say you refinance your $35,000 loan at 8% over 72 months to a new loan at 6% APR with a 60-month term. Due to the shorter term, your payment will increase by about $60 per month, but the tradeoff is you’d pay off your loan faster and save more than $3,500 in interest.

Original Loan Refinanced Loan
Loan amount $35,000 $35,000
Repayment term 72 months 60 months
Payment amount $616.66 $676.65
APR 8% 6%
Total interest $9,183.77 $5,598.88
Total repaid $44,183.77 $40.598.88

7. Use your tax refund

A tax refund can offer an unexpected influx of money that can be extremely helpful in paying off your car loan early. When you use this money to pay down your car loan, you’re addressing what is typically your second-highest monthly payment.

8. Freeze extra spending

If you’re attempting to use the debt snowball or debt avalanche method to pay off credit card debt, then you know how important it is to stick to a budget to pay off debt efficiently. By limiting any non-essential spending, you may be able to accrue extra funds to put towards your auto loan.

9. Find a side hustle

If you can’t cut your spending, making efforts to increase your income is another way to pay off your car loan faster. Consider finding a side hustle, such as driving for ride-share or delivery services, or selling artistic goods, where you can earn enough to cover an additional payment on the loan each month.

Related: Best Side Hustles to Pay Off Debt

10. Host a yard sale

This might not be the fastest way to pay off a car loan, but it could put a significant dent in your principal. By hosting an annual yard sale, you may not only be able to rid your home of unnecessary items, but also make enough money that you can make an additional payment on your car loan.

11. Boost your income

While side hustles and yard sales are great, not everyone has additional time outside of their regular working hours to earn side income. If you’re in a position to do so, though, you may be able to request a raise, ask to work overtime, or take on additional responsibilities that warrant a higher salary. Negotiating a raise can feel intimidating, but you might be surprised to find that sometimes all it takes is asking.

12. Review your car add-ons

When you buy a car, you may find that your dealership or lender added extra fees and dealer add-ons into your contract. Examples include:

  • Service contract
  • Extended warranty
  • Tire and wheel warranty
  • Exterior and interior protection package/warranty
  • Guaranteed asset protection (GAP) coverage

Look carefully into your contract to learn if you are paying for any of these, and if so, reach out to the dealer or lender and ask if you can cancel any you don’t want. They may give you a partial refund or credit for some of the payments you already made, and regardless, you won’t have to pay for them moving forward.

Should you pay off your car loan early?

While there are many situations when paying off your car loan early can be beneficial, there are also some instances when it may not make sense:

When it makes sense

  • You have the cash: If you have extra cash, such as from a gift, tax refund, work bonus, or something else, it doesn’t hurt to put it towards your loan.
  • You want to get out of debt faster: Paying off debt can help significantly reduce stress and free up cash for other purposes, such as buying a house, making a large purchase, or just having more padding in your budget. Paying off your loan early can also help improve your credit score by decreasing your credit utilization and lowering your debt-to-income ratio.
  • Your interest rate is high: If your auto loan interest rate is high, paying it off faster can help save you significant cash. Or, consider refinancing your loan at a lower rate so you won’t have to pay as much in interest.

When it does not make sense

  • You’ll get charged a prepayment penalty: Some lenders actually penalize you if you pay off your loan before the full term. Compare the penalty amount with the amount of interest you’d save by paying off the loan faster. If your savings doesn’t outweigh the penalty, stick to the loan schedule.
  • You have other debt with higher rates: If you have other high-interest debt, such as a credit card or personal loan, you should put extra cash toward paying those off before your auto loan. This will help save you more money on interest in the long run.
  • It will put a strain on your budget: If you don’t have the extra cash, or if making extra payments would make it difficult to pay other bills like your rent/mortgage, utilities, or other minimum debt payments, you probably shouldn’t put more cash toward your auto loan.
  • You don’t have other debt: This sounds counter intuitive, but because your credit score is calculated based on the type of debt you have and the length of your accounts, eliminating the only debt you have could actually hurt your score. Making consistent payments for a longer time can help your credit score.


In some cases, such as if you don’t have any other debt, paying off your car early could hurt your credit score. This is because your credit score is calculated based on the type of debt and length of accounts, so eliminating the only debt you have could hurt this calculation. However, making your payments on time and responsibly managing any other debt you have, like personal loans or credit cards, can actually improve your score.

The fastest way to pay off a car loan, short of one lump-sum payment, is to make double payments each month, if your contract allows. However, if you’re struggling to pay off your car loan, you might also consider selling your current vehicle and downgrading to something you can purchase in cash.

Always check your auto loan contract before paying it off early. There may be a prepayment penalty for paying the loan off early. A typical prepayment penalty is around 2% of the outstanding balance. So, if you have an outstanding balance of $5000, your prepayment penalty might be $100. If that penalty is more than the amount of interest you’ll save with an early payoff, then it likely isn’t worth it.

It’s important to always pay on the principal balance when you make extra payments on your auto loan. There should be an option to do this on the lender’s website, but if not, reach out to the lender to ensure your extra payments are going toward the principal. This will ensure you lower the amount on which you’re charged interest and, thus, lower the amount of interest you’ll pay over the life of the loan.