Everyone is looking for ways to save money, pay fewer bills, and have some extra money each month. Paying smaller, more frequent amounts can help free up some money and pay off your car loan faster.
On larger loans like a mortgage or car payment, your interest is charged monthly, based on the principal balance after last the previous month’s payment was processed. There are a few ways to lower your loan amount and pay your debt off faster than if you make regularly scheduled monthly payments. Let’s take a look at your options.
More Frequent, Smaller Payments
If you are currently paying a monthly bill on your car loan, you are paying exponentially more towards your car due to the interest rate. If you pay weekly, the interest charge will be less, since the payments are coming more frequently.
Divide your monthly bill by 4, and you’ll see that it only takes 48 months to equal your annual payments. So the other payments will go directly to paying off your loan.
This means that making frequent payments will reduce the amount of your principal, therefore affecting your interest.
Benefits of Weekly Payments
There are 52 weeks in a year. If you divide 52 by 12 (months), the result is 4.33. This means that some months technically have 5 weeks, instead of 4. By making weekly payments instead of monthly, it’s the equivalent of paying 13-monthly payments in a year, instead of 12. Again, helping you pay off your vehicle faster and lowering the interest payments.
For the sake of easy math, let’s say you have a $200/month car payment. If you divide that by 4, you’ll be paying weekly payments of $50. Now multiply $50 by 52 weeks, and you’ll have an annual total of $2,600. If you pay $200 each month, for 12 months, the annual total is $2,400.
Now, saving $200 a year may not seem like much. But if you have a 60-month car loan, you’ll save a total of $1,000 just by paying a weekly amount of $50.
In 2017, the average monthly car payment was a whopping $479, with an average length of 68 months. Dividing $479 by 4 equals weekly payments of $119.75, which, multiplied by 52 equals an annual total of $6,227. The same monthly payment, if paid monthly, will equal an annual amount of $5,748. The total savings over your 68-month loan term will be approximately $2,680. That’s a lot of cash.
Free Up Your Budget To Save and Invest
While paying your car off weekly may not save you a ton on interest,it will free up some cash and perhaps make your monthly budget more reasonable. Especially if you get paid weekly. This freed up money can be used to put towards paying down other debts (who doesn’t want to be debt-free?!) or invested.
If, after your car is paid off, you continue to set aside that $479 each month and invest it wisely (at an average 6% interest rate), after 10 years, you’ll have over $77,000 saved up. THis kind of cushion is unusual for most Americans these days, yet necessary in many cases to put towards retirement or unexpected life events. Or, it would simply give you some flexibility and breathing room in your monthly budget.
Once you see how much you’re saving by doing this, it will be hard to go back to making monthly payments, and you’ll be inspired to find more ways to save money.
Let’s start saving!