How quickly should I pay off my car?

If you're in the market for a car, you can now get a car loan with a 72 month repayment plan. This means that your repayment amounts would likely be low. But if you looked closer at the numbers, you'd realise that it just feels lower and that you're actually paying more, just over a longer period of time.

As with most loans, it's generally in your favour to pay it off sooner. The National Credit Act gives you the right to increase your monthly premium. If you pay in a lump sum, the credit provider has to recalculate and give you the benefit of a smaller instalment or shorter term. With most credit providers you can settle the loan early. There might be conditions, but you will no longer be hit with a penalty fee for doing it.

When you start repayments on your car loan, you owe more than the car is worth. The length of this payment stage depends on the size of your premium and the car purchased. Until you reach the point where you have equity on the car you'll have trouble selling it if you need to - a buyer will only pay the vehicle's worth, not what you owe.

If you chose a market-linked interest rate and prime goes up, your total debt will increase. You could offset that, in part, by paying more or settling the outstanding amount.

Paying off a car loan early saves you money in interest and boosts your credit rating. If the debit order for your car loan goes off on the 1st of the month, move it closer to pay day, which is the 25th for most South Africans. This could save you a little extra.

If you opted for a balloon payment, put something away in a savings plan towards the amount or better yet have a sum saved up to put as deposit for your vehicle. And don't skip payments, even if it's allowed. 

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