How To Pay Off Your Car Loan in 12 Months

Young woman calculating her credit payments with the help of a car dealer in a vehicle showroom.

Few things are more satisfying than making that last, final car payment that sets you free from a loan that came calling every month for the last three, four or five years of your life. If you go into it with a strategy, a plan and a budget, however, you can knock three to five years down to one. Paying off a car loan in 12 months would be difficult for most — but possible for many.


Buy Less Car Than You Can Afford

Smart shoppers know to get preapproved for a loan before they start the car-buying process so they’re not at the mercy of whatever financing the dealer offers. Once you get the green light, it’s natural to start shopping in the upper reaches of your preapproval limit, where the cars with all the hot features, tech and soft leather are.

Unfortunately, it’s not only natural — it’s incredibly common.

According to 2021 data from Kelley Blue Book (KBB) and LendingTree, the average car now costs $42,258 and comes with an average monthly payment of $563, a record high. Considering that the median salary in the United States is $41,535, according to the U.S. Census Bureau, it’s not hard to understand why so many people are trapped in the cycle of consumer debt.

Just because you can spend more than your annual salary on a car doesn’t mean that you should.

Want to pay off your loan in a year? Give yourself a fighting chance by shopping several tiers below your preapproval limit 12 months before your final payment is due.

Make Your Money Work for You

Three cars — the Chevy Spark, Mitsubishi Mirage and Nissan Versa — all come with sub-$15,000 MSRPs. If you require a little more oomph than bare-bones, entry-level subcompacts can offer, there are dozens of other, better vehicles still well inside of $20,000. Start there.

Put a Full 20% Down

The more money you put down, the less you borrow. When you borrow less, you pay less interest over time and get better interest rates from the beginning. KBB advises never to raid your emergency savings to put more money down, but you should do just about anything else in your power to pad your down payment.

While KBB says that the old 20% rule no longer applies and most sellers now require only 9%-12% down, Autotrader and many other reputable sources think that 20% is still the magic number. Just as you don’t spend as much as you’re preapproved to borrow, ignore what the seller will let you get away with and put as much money down as possible.

Here’s some math to back up the point:

  • If you put zero down on an $18,000 car at 3.11% interest for one year, you’d make 12 monthly payments of $1,525
  • If you put 10% down ($1,800), your monthly payments would be $1,373
  • If you put 20% down ($3,600), your monthly payments would be $1,220

Transfer Your Loan Balance

One strategy for paying off your loan early is to cut your payment in half and pay 50% of your monthly tab every two weeks. This will give you 26 half-payments per year, which is 13 monthly payments in 12 months.

Many people, however, simply won’t be able to swing it even with an extra payment. In that case, you may want to consider transferring some or all of your remaining loan balance to a new credit card with a 0% APR introductory period. Your card will come with balance transfer checks, which you can use to pay off your auto loan and stop paying interest on that debt, according to Chase — but the move only buys you time.

Make Your Money Work for You

At first, all you’ll have to do to stay in good standing is make the minimum monthly payments, but when the introductory period ends in 12, 15 or 18 months, you’ll be on the hook for double-digit credit card interest that can easily hit 20% — much higher than any standard car loan.

Use this strategy only if you can pay the entire transferred portion of the loan within the new credit card’s grace period.

Make Your Car Earn Its Keep

If your budget doesn’t have a lot of wiggle room, there are only two ways to come up with more cash — earn more or spend less.

In this case, it’s your car that’s causing all the money stress, so maybe your car should start chipping in for the cause. You could, of course, drive for Uber, Lyft or a food-delivery service to make some money on the side to put toward your 12-month loan repayment plan. That, however, still entails you working to pay for your car.

Your car can pay its own way, on the other hand, if you loan it out when you’re not using it through P2P rental sites like Getaround, Turo, Maven and HyreCar. Once you have your car kicking in a few hundred extra bucks per month, that 12-month timeline will start to feel a whole lot shorter.

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