Anytime one is able to pay debt off earlier than the repayment period is a relief. From store card debt to paying off your vehicle finance early. But are there penalties for doing so? And if you don’t have the money on hand, how can you eliminate your vehicle finance debt quicker?
According to Rudolph Mahoney, head of brand communication at Wesbank, settling your vehicle finance early is always a good idea as you tend to save on interest change over the long term.
When it comes to potential penalty charges in most cases no penalty interest is charged, “The settlement is calculated on the capital amount owing at that point in time, and interest is calculated from when the last instalment was paid the previous month, up to the specific day the settlement amount is requested. However, in some cases penalty interest is payable, mainly on large agreements that fall outside of the National Credit Act. WesBank however waivers this interest should the client refinance with WesBank,” Mahoney adds.
Further, here are a few simple techniques to help you pay your vehicle off sooner:
1. Make extra payments: Sometimes you find yourself in a financial position where you are able to pay a bit more than the agreed upon repayment amount. Should this be the case, look at making bigger monthly repayments, but make sure it is a feasible amount and won’t land you in financial trouble in other areas.
2. Avoid the ‘skip payment option’: Often lenders or financers will offer you the option to skip making your payment at some stage in the agreement. Sometimes it’s at the beginning which means you’re exempt from making payments for the first two months. Typically lenders also allow for a payment break during the December month. While the obvious temptation is to take full advantage of these breathers, according to experts this only extends your loan in the long run. While this may not seem like the worst thing, it also means that interest is tacked on.
3. Make a bonus payment: In keeping with the advice of making extra payments, for many this isn’t feasible during the year. But for some who receive a bonus making a sizable extra payment could be an option. This results in one extra payment a year and can help you pay off your financing a little earlier.
Another tip is to deposit extra payments into the vehicle finance account, which will be seen as "Advance Payments" and will continue to accumulate with interest. Once you have a sizable amount of cash in "Advance", contact the bank and ask them to recapitalize your loan. Here, you can choose to either lower your monthly instalment or decrease the loan term.
While paying off any debt earlier requires discipline and careful financial planning, it is not an impossible goal. When it comes to paying off one’s car early it is a worthwhile sacrifice as car payments can typically lock you in for up to seven years, which is not ideal if you’re wanting endeavouring to take on other big debt like a bond for example.