One Auto Loan Hack That Saves You Money

One simple change to the way you pay can cut hundreds (or more) off your auto loan. We’ve got an auto loan hack that saves you money.

If you’re like most people with auto loans, you probably send in one loan payment per month. There’s nothing wrong with that, and it’s what you planned to do when you signed on the dotted line. But, what if we told you that by splitting your payment into two and paying semi-monthly, you could save money over the life of your loan?

How does splitting my payment save me money?

Splitting the payment in half and paying twice in the month (semi-monthly) saves money. Why? On an auto loan, interest compounds daily. By paying half your payment early, you actually cut down the principal faster, thereby reducing the corresponding compounding interest you’ll pay over the life of the loan. Plus, any extra amount you kick in toward your loan beyond what you owe for the month, even if that’s only $25 or $50, will save you on interest over time and trim down your timeline to paying off the loan completely.

What’s the catch?

If we’ve made this sound too good to be true, we promise it’s not. There are a couple important caveats to be aware of, depending on your lender. If you have your loan with us, you won’t have to worry about these things, but here’s our advice for navigating this auto loan hack with other lenders:

Watch out for prepayment penalties. Some lenders charge fees when you pay off your loan early. We don’t, but if your lender does, you can do the math first to determine if the money you’ll save on interest over time will be worth any fee you might incur for paying early.
If you make an extra payment, make sure it is applied toward the principal. At Grow, we automatically apply any amount that’s paid beyond the amount owed for the current month to the principal, which helps cut your loan down faster. Some lenders may hold the extra payment as a prepayment for a future month. If that’s the case, make sure to let your lender know that you want the extra payment to be applied to the principal while retaining your next scheduled payment. Remember to check your monthly statements to be sure the payments get applied correctly.

Stuck with another lender that doesn’t want you to get out of debt? Learn more about refinancing your auto loan with us.

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