How to pay off your car loan in 12 months



Few things are more satisfying than making that final final car payment that frees you from a loan that has been requested from you every month for the last three, four, or five years of your life. However, if you get started with a strategy, plan, and budget, you can cut three to five years down to one. Paying off a car loan in 12 months would be difficult for most, but possible for many.

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Buy less car than you can afford

Savvy buyers know they need to get pre-approved for a loan before they begin the car buying process so they are not at the mercy of dealer financing. Once you’ve gotten the go-ahead, it’s natural to start shopping within the upper limits of your approval limit, where the full-featured cars, tech, and supple leather are.

Unfortunately, it’s not just natural, it’s incredibly common.

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According to 2021 data from Kelley Blue Book (KBB) and LendingTree, the average car now costs $ 42,258 and comes with a record average monthly payment of $ 563. Considering that the median salary in the United States is $ 41,535, according to the US Census Bureau, it’s not hard to see why so many people are trapped in the cycle of consumer debt.

Just because you can spend more than your annual salary on a car doesn’t mean you should.

Want to pay off your loan in a year? Give yourself a fighting chance by purchasing multiple levels below your pre-approval limit 12 months before your final payment is due.

Three cars – the Chevy Spark, the Mitsubishi Mirage, and the Nissan Versa – all have MSRPs of less than $ 15,000. If you need a little more oomph than entry-level subcompacts can deliver, there are dozens of other higher-quality vehicles still well within $ 20,000. Start there.

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Put a full 20% down

The more money you put in, the less you borrow. When you borrow less, you pay less interest over time and earn better interest rates upfront. KBB advises never to plunder your emergency savings to put in more cash, but you should do just about everything in your power to complete your down payment.

While KBB says the old 20% rule no longer applies and most sellers now only require 9% to 12% cashback, Autotrader and many other reputable sources believe that 20% is still the magic number. Just like you aren’t spending as much as you are pre-approved to borrow, ignore what the seller will let you do and put in as much money as you can.

Here are some calculations to support this point:

  • If you put zero on a $ 18,000 car at 3.11% interest for one year, you’ll make 12 monthly payments of $ 1,525
  • If you put 10% down ($ 1,800), your monthly payment would be $ 1,373
  • If you put 20% down ($ 3,600), your monthly payment would be $ 1,220

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Transfer your loan balance

One strategy for prepaying your loan is to cut your payment in half and pay 50% of your monthly bill every two weeks. This will give you 26 half payments per year, or 13 monthly payments in 12 months.

A lot of people, however, just won’t be able to swing it, even with an additional payment. In this case, you may want to consider transferring some or all of your loan balance to a new credit card with an introductory period of 0% APR. According to Chase, your card will come with balance transfer checks, which you can use to pay off your car loan and stop paying interest on that debt, but that decision only saves you time.

At first, all you’ll need to do to stay in good standing is make the minimum monthly payments, but when the introductory period ends in 12, 15, or 18 months, you’ll need to pay two credit card interest. figures. which can easily reach 20%, which is much higher than any standard car loan.

Only use this strategy if you can pay the entire transferred portion of the loan within the new credit card’s grace period.

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Make your car a living

If your budget doesn’t have a lot of wiggle room, there are only two ways to make more money: earn more or spend less.

In this case, it’s your car that’s causing all the financial stress, so maybe your car should start contributing to the cause. You can, of course, drive for Uber, Lyft, or a food delivery service to earn money to spend on your 12-month loan repayment plan. This, however, still requires you to work to pay for your car.

On the other hand, your car can pay for itself if you loan it out when not in use through P2P rental sites like Getaround, Turo, Maven, and HyreCar. Once your car brings in an extra few hundred dollars a month, that 12-month window will start to feel a lot shorter.

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About the Author

Andrew Lisa has been writing professionally since 2001. Award winning writer Andrew was once one of the youngest nationally distributed columnists for the nation’s largest newspaper union, the Gannett News Service. He worked as the business editor for amNewYork, the most circulated newspaper in Manhattan, and as the editor for, a financial publication at the heart of the Wall Street investor community in New York.


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