A recipe for paying off your auto loan early

A good recipe always starts with two things – good ingredients and solid prep work. Don’t believe me? Ask a professional chef.

The recipe for paying off your vehicle is not all that different.

Let’s start with the ingredients. You will need:

  • Your monthly payment amount
  • Your monthly payment due date
  • The funds to make your payment on or before the due date
  • A payment method
  • A clear understanding of how your payment is applied
  • Additional funds to apply to the principal or to make a principal-only payment (optional)
  • Confirmation that your payment was received (optional)

Now for the prep work. Ideally, a plan for paying off your vehicle, particularly a plan for paying it off early, starts before you ever even sign the contract.

Something my dad told me once that has always stuck with me was, “Linda, you can always pay a little bit more than your monthly payment and that’s okay. But you can’t pay less.”

Ever since then, before I start car shopping I calculate my budget, create a target payment and then work to structure my payment at, or below, my target payment. If that means stretching my payments out to 72 months versus 60 months, that’s what I’ll do.


Because I can always add an extra $10, $20 or more to my payment when I can afford to do so. But if I have a month where something unexpected arises and my budget is stretched thin, I’m going to be glad I’m only obligated to make the lower payment.

Understanding how your payment is applied each month is an important ingredient. How much goes toward interest and how much is applied to your principal? Is any overage received by the finance company during a payment period automatically applied to the principal? (If any of this sounds unfamiliar, Understanding Simple Interest Loans, on our first-time buyer page, is a short video that outlines how your contract works.)

When it comes to making additional payments toward reducing the principal, every little bit helps. You may not think $10 sounds like much, but if your payment is $240 and your term is 60 months, adding $10 to your payment each month can, roughly, reduce the number of payments you make by two.

I don’t know about you, but paying off my vehicle two months early sounds pretty great to me! I think I can find a way to give up a couple lattes a month in order to get there.