How to pay off your car loan sooner

Car balloon payment

If you opt for a balloon payment when borrowing money for a car, you’re agreeing to pay a lump sum to the lender at the end of the car loan term.

Essentially, this means over the life of the loan a percentage of your interest repayments will be diverted into a separate space, ballooning over time, and in return, your monthly repayments will be reduced. Balloon payments can significantly reduce your monthly repayments and are usually anywhere from 30-50% of the loan amount.

If you wanted to pay off your car loan sooner using a balloon payment, you could opt for a shorter loan term. For example, a $30,000 loan for a car of the same value, repaid over five years at 5% p.a. would have monthly repayments of $566.

The same loan and car, repaid over three years at 5% p.a. with a 50% balloon payment would have monthly repayments of $512. You would be able to pay off your loan two years sooner, however, you would have to come up with the $15,000 balloon payment. Borrowers typically do this by selling or trading the car in.

Extra repayments

Extra repayments may be the simplest way to pay off your car loan sooner. You could choose to increase your monthly repayments by a set amount each month, or simply make a lump sum payment whenever you see fit.

It’s important to note some lenders won’t let you make extra repayments, while others have a minimum or maximum extra repayment you can make over a period of time. Make sure you check the fine print before borrowing to see whether there are any stipulations that may prevent you from making extra repayments if you think you may want to do so.

Repayment frequency

Increasing your repayment frequency is another incredibly easy way to pay off your car loan faster. Increasing your monthly repayments to be weekly or fortnightly repayments will mean you make an extra months repayment each year.

This is because there are 12 months in a year, but there are 26 fortnights, which equates to 13 monthly repayments. The same can be found for weekly repayments. Make sure you check your lender allows fortnightly or weekly repayments, as some do not.


Refinancing your car loan to a lower interest rate can not only help to pay off your loan sooner but also save you a significant amount of cash.

For example, if you had a $30,000 car loan at an interest rate of 7% repaid over five years, your monthly repayments would be $594. If you refinanced to a rate of 5%, your monthly repayments would drop to $566.

Over that time period, you would pay $5,640 in interest at a rate of 7%, compared to $3,960 at 5%. That’s a saving of $1,680.


A similar concept to extra repayments, rounding up your monthly repayments can help you to pay off your loan sooner.

Rounding up to the nearest $50 or $100 may not seem like much, but could save you thousands on interest costs. For example, if your monthly repayments were $560, you may consider rounding up to $600.

That’s an extra $480 off your loan each year, almost another whole monthly repayment, simply by rounding up.

Should you pay off your car loan early?

Paying off debt as quickly as possible is almost always a good thing and paying off your car loan early is no exception. Paying off your loan early could mean saving you thousands in interest costs, improve your credit score, and leave you to funnel that money into other things, like an emergency fund, renovations, or a holiday.

However, it’s vital you check what your lender's stipulations are around paying off the loan early and extra repayments. Some lenders will charge you for making extra repayments, or have a maximum amount of extra repayments available in a certain period. Others may charge you early exit fees when paying off the loan early, which can be very expensive, especially for fixed rates.

Check with your lender to see any charges they may have around extra repayments and paying off early. If there are fees, make sure the savings from paying off early outweighs the cost of the fees, otherwise, you’ll be losing money. Alternatively, you could refinance to another lender who doesn’t charge such fees, while also trying to get a lower interest rate.