Are you buying a car? Or have you already bought your dream set of wheels (even if your dream was just to have wheels and the car isn’t an actual Ferrari)? Then you know full well that buying a car is a significant investment. It’s also a pricey undertaking that adds yet another bill to your budget.
As relieved as you might be to finally have your transport sorted, it’s likely that you’ve started feeling the pinch of your monthly installments. If that’s the case, then it’s essential to have a plan in place to pay off the car as quickly as possible. After all, who doesn’t want to save on interest and free up their finances for other things?
Here’s a quick look at a few tips to help you pay off your car as fast as possible, as well as a hint or 2 so that you can make informed decisions.
1. Choose a shorter loan term
If you’re going through the bank (or another type of financial institution) to finance your car, it may be possible for you to choose the loan period. To put it another way, you may be able to choose how long you want to pay the car off for. The normal timeframe is usually 5 years, but you could reduce this to 3 years.
The shorter the loan term, the less interest you’ll pay over the life of the loan, but keep in mind that you’ll also pay higher monthly installments. (Hint: Which you need to be able to afford.)
2. Rather avoid balloon payments
A balloon payment is, in short, a large pot of cash that you’ll have to cough up at the end of the loan term, and you’ll have to make this payment in full. It’s really tempting, because it can lower your monthly payments. The thing is, it could also feel like a trap, leaving you with a hefty bill that you might not be able to afford. Lots of people think that a balloon payment is a key way to afford their cars, but in reality it often ends in tears.
This is especially true if something happens to your car, like an accident that writes it off, a hi-jacking, or theft. That’s why the king offers credit shortfall, to pay the amount that you still owe the financier after we’ve settled the claim.
3. Make extra payments
Making extra payments on your car loan can help you pay off your car faster. Even small extra payments can add up over time and help you pay off your car sooner.
4. Refinance your car loan
It’s sometimes possible to get a lower interest rate, which will lower your monthly payments and make it easier for you to pay off your car quicker. Essentially, refinancing your car involves taking out a new loan to replace your existing loan in the hope of securing better terms. It’s worth exploring, but keep in mind that you could just be making the whole journey longer for not that much less in savings. Also, you’re not guaranteed better terms.
A few disadvantages to consider
It’s tempting to pay off any debt as quickly as you can, and in most cases, it’s to your advantage. But, in saying that, we’d have to argue that there is some wisdom to taking things easy.
Here are a few hints around why it might not be good to pay off your loan faster:
- Higher monthly payments: Choosing a shorter loan period so you can pay off your car faster does mean you’ll have higher monthly payments, which can be difficult to afford.
- Limited options: Paying off your car quickly could actually limit your options, because you may have to look at much cheaper cars that are more affordable.
- Limited cash flow: Paying off your car quickly can limit your cash flow because you’re likely to need to use your savings to make these payments.
- Penalties: Some car loans include a penalty for ending the loan sooner then terms set in your agreement, so keep an eye out for that.
Let the king help you with cheaper car insurance
We hope these tips help, and don’t forget that car insurance is 1 of the costs that you need to factor into your budget when buying a car. Our goal is to make sure that South Africans have access to the most affordable car insurance that’s there for them when the tyres hit a particularly rough piece of tar. That’s why we do our best to give you a range of car insurance options, and keep things simple and cheap.
Curious about how affordable the king’s cover is? Of course you are. Click here to get things going online, or WhatsApp us on 0860 50 50 50 for a commitment-free quote.
