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How to reduce your car loan repayments

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Getting your own set of wheels is a very rewarding experience. But even so, a high monthly car payment can be a burden to your wallet. To reduce the burden, here are some ways to cut the repayments on your car loan:

Improve your credit score

With a good credit score you can secure a lower interest rate, and with a lower interest rate, you will have a lower car loan repayment.

If you have a bad credit history, there are still ways to recover from it. Start paying your bills on time, don't make loan enquiries, keep credit card balances low, and pay off debts.

Demonstrating good financial habits and financial stability to financial institutions can help prove to them that you are not a risky borrower. To get an idea of what your credit score is, you can visit the following websites:

They will be able to give you a copy of your credit report for free.  

Add a balloon payment

Another way to reduce the size of your regular car loan repayment is by adding a balloon payment at the end. A balloon payment is a lump sum owed to the financial institution that you will need to pay at the end of the loan term. This larger lump sum reduces your regular repayments and coincides with the time when you may trade the vehicle in and receive some cash for it which you can then use to pay off the loan.

Have a bigger car loan deposit

A bigger car loan deposit may be difficult to save up for, but if you manage to put down a larger initial deposit, you will be able to reduce the money you need to borrow. This will leave you with lower car loan repayments.

Stretch out your car loan term

There are pros and cons when you decide to stretch out your car loan term. The main pro is that it can reduce the size of each of your car loan repayments. However, it will increase the total amount of interest you have to pay on your car loan.

If you think you can’t support your current car loan repayment, you can ask your financial institution if it’s possible to extend your car loan term.

You can also explore our car loan calculator to get an estimate of your car loan repayments. To use this calculator, you just need to indicate the value of the car, interest rate, loan term, initial deposit, and the balloon payment.

Car Loan calculator

Increase payment frequency

Typically, lenders will require you to make monthly repayments on your car loan. However, some will allow you to make fortnightly or weekly repayments. By doing so, you’ll be making an extra month’s worth of repayments in a year, as there are 52 weeks in a year, which works out to be 13 months. This can drastically reduce the length of your loan and how much interest you pay.

Make lump sum payments

Making lump-sum payments can also reduce the principal of the loan and also the time you pay out the loan, if you maintain your regular monthly repayments.

Refinance your car loan

Refinancing your home loan can often seem daunting, but it’s often very simple, potentially saving you thousands in the process. Even reducing your interest rate by as little as 25 basis points can drastically reduce your repayments and the amount of interest paid over the life of the loan.

Round up your repayments

Rounding up your repayments can be another simple way to pay off your loan quicker. Rounding up doesn’t mean from 50 cents up to the dollar. Consider rounding up to the nearest $50 or $100 mark. It may not seem like much, but that extra amount each month, for a number of years can quickly add up, if your lender allows.

Pay half your monthly repayment every two weeks

Similar to increasing your payment frequency, paying half your monthly repayment once a fortnight can cut down your car loan term quickly. This also doesn’t have to be something you do all the time, but it's an easy way to remember to pay off more if you have some extra cash.

Make at least one large payment over the term of the loan

Again, similar to making a lump sum payment, making one large payment over the life of the loan can be an effective way to reduce its term. For example, if you have a $25,000 car loan and you made a large payment of $5,000 early on in the loan, you would drastically reduce the time it took to pay off the loan, again if your lender allows you to.

Don’t skip payments

Skipping payments can not only lengthen your car loan term, it can affect your credit score. Your lender won’t be happy you missed a repayment and will get in contact with you to try and fix the error. You’ll end up paying more interest on the loan, costing you more money.


What happens if you stop paying your car loan?

If you stop paying your car loan your lender will get in contact with you to discuss any issues you’re having. If you still refuse to pay the loan, the lender will be forced to take drastic measures. If you have a secured car loan with the car as security, the lender may repossess your car to cover the cost of your loan. If you have an unsecured loan, the lender may take you to court to get their money back. In both cases, your credit score would likely drop significantly.

Can you refinance a car lease loan?

It’s possible to refinance a car lease loan but you will typically have to wait until the end of the lease period to do so.

How soon can you refinance a car loan after purchase?

How soon you can refinance a car loan after purchase typically comes down to your individual circumstances, taking into account the rate, fees for the loans closing and fees to setup new loan. There are generally no concrete rules around how soon you can refinance, meaning you could do it straight away, but your new lender may not like that you are refinancing so soon.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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