See how much sooner you can pay off your car — and how much interest you save — by adding extra to your monthly payment.
Every dollar you add above your required payment goes straight to principal, so it skips all the future interest that principal would have generated. On a car loan, even a modest extra amount each month can shave months off the term and save hundreds in interest.
Interest is charged on the remaining balance, which is highest at the start of the loan. Extra payments made early cut the balance while interest charges are largest, so the same extra dollar saves more when applied sooner rather than later.
Most auto loans in the U.S. have no prepayment penalty, but some — especially precomputed-interest loans — do. Confirm your loan uses simple interest so that extra payments actually reduce principal and shorten the term.
The reason extra payments are so powerful early is that a car loan front-loads its interest. In the first year, a large share of each payment goes to interest rather than principal, so an extra $100 put toward principal now removes far more future interest than the same $100 applied near the end of the loan. Rounding your payment up to the next $50 or $100, or adding one extra payment a year, can shave months off the term and save hundreds in interest with almost no change to your monthly budget. Before you accelerate, though, weigh it against higher-interest debt: if you're carrying a credit-card balance at 20%+, paying that down first usually beats prepaying a 6% car loan.
Tip: Rounding your payment up to the next $50 or $100 is an easy, painless way to pay a car off early without feeling a big monthly hit.