Financial Advice Blog

How to pay off your car loan faster

If you're one of many Australians with a car loan amid a cost-of-living crisis, Financial Spectrum's Brenton Tong discusses ways you can pay it off faster.

Financial Spectrum’s Brenton Tong was interviewed for this article by Nina Hendy published on  You can view the original article here.

Being lumped with a car repayment amid a cost-of-living crisis isn’t exactly an ideal situation.  Unfortunately, it’s a reality for many Australians.  For a secured car loan, market interest rates are currently hovering between eight and 11 per cent. Ouch.  Here are some ways you can knock off a car loan faster, which can save you on interest repayments.

Ensure you won’t face a penalty

Before you change anything, know that some loan contracts include harsh penalties for paying your car loan out faster.  “These can add up pretty quickly, and they are a clause of the contract you need to understand when signing on the dotted line,” warns financial advisor Brenton Tong, of Financial Spectrum.  When you pay your loan out early, any outstanding interest wouldn’t be payable, so if you break that contract the lender recovers the costs by charging an early exit fee. These fees vary significantly.  Don’t be turned off. It still could be worthwhile to know that the loan has been knocked over and that you’ll save on interest payments.

Increase your payment frequency

If your direct debit for your car loan is monthly, you’re making 12 repayments a year.  But if you shift to paying off the car loan fortnightly or weekly, you’re actually bumping up the number of repayments you’re making over the course of the year.  “It’s an easy way to pay a little more without really realising it, and will help you save on interest,” car loan expert Julian Finch, of Finch Financial, says.

Also, make sure you line up the payments to come out of your account as close to the day that you receive your salary as you can.  “That way you always know the funds for the car loan will be in your account,” Finch says.

Change the loan terms

Depending on your lender, you may be able to change the terms of your agreement.  A typical car loan is five years, but consider reducing the loan term to 36 or 48 months, which will cost you more in terms of the repayments, but it’s saving you 12 months’ worth of interest.

Refinance the loan

If you’ve got a little equity in your home loan, consider refinancing and rolling your car loan over into your home loan so you can pay off your car in full. Home loans usually carry a lower interest rate than car loans, so you could be saving right away.  But check your calculations carefully. This can be a false economy because if you take a three-year loan and stretch it over a 30-year home loan, the repayments are going to take longer to make, and you’ll be making more of them, warns Mr Tong.  “You might be paying slightly less interest, but over a 30-year time frame it will mean that you’re going to be paying a hell of a lot more back,” Mr Tong says.

The trick when refinancing is to incorporate your car repayment into your home loan repayment.  For example, if your car loan repayment is $700 a month, once you’ve rolled your car repayment over to your home loan, your minimum payments might go from $2500 to $2510 a month, Mr Tong explains.  “But don’t just pay the minimum. Make sure you increase your home loan repayment by the $700 you’re saving on the car loan, so that you end up paying off the extra on your home loan in a shorter time,” Mr Tong says.  “That way you’re genuinely getting a benefit that also provides you with some flexibility so you can drop down to minimum repayments for a period of time if you need to,” Mr Tong says.

Round up the payment

If you can afford to, consider rounding up your regular repayment amount, which is a guaranteed way to knock over the loan faster.  If your loan is $439 a month, consider rounding up to a whole number, such as $500 a month.  Adding $61 a month on top of your repayment means you’ll be paying an additional $732 a year off your car loan.

Make extra payments when you can

This is simple. If you come into a decent chunk of change like a tax refund at the end of the financial year, put it straight onto your car loan.  You might even be able to sell that bicycle lying around your home and pay that cash onto your car loan.

Use your car to make extra cash

If you have a little extra time, you may want to use your car to earn a little extra income. There are plenty of platforms that allow you to rent your car out to others when you’re not using it.  You could do deliveries in your car, or join a ridesharing service and work in your free time.  Just be wary that manufacturers typically have different warranty terms for cars used for ride-sharing or delivery purposes, so read the fine print to familiarise yourself with your coverage.

Get pre-approved

If you haven’t actually got your car loan yet, make sure you get pre-approved before you step foot into a car yard.  “You don’t want to have already picked out the car of your dreams when you’re talking loan agreements. Instead, get your finances pre-approved so you’re making a more calculated decision when you’re shopping for a car,” Finch says.

Share this article


More articles

Talk to us, guaranteed value

We’re so confident about creating value for you quickly, that we guarantee it with a 100% money-back guarantee.

Book a complimentary financial strategy session.