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.
Written by Publishing Team

A young woman calculates her credit payments with the help of a car dealer in a car showroom.


There are few things more satisfying than making that last car payment that gives you freedom from a loan that has come in every month for the last three, four or five years of your life. However, if you get into a strategy, plan, and budget, you can reduce three to five years to one. Paying off a car loan in 12 months will be difficult for most people – but possible for many.

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Buying a car for less than you can afford

Smart shoppers know to get pre-approved for a loan before they even begin the car buying process so they are not at the mercy of any dealer financing. Once you get the green light, it’s only natural to start shopping in the upper reaches of the pre-approval limit, where cars have all the hot features, technology, and smooth leather.

Unfortunately, this is not only normal – it is incredibly common.

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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, which is a record. Given that the median salary in the United States is $41,535, according to the US Census Bureau, it’s not hard to understand why so many people are trapped in the consumer debt cycle.

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

Do you want to pay off your loan within a year? Give yourself a fighting chance by shopping several levels below the pre-approval limit 12 months before the final payment is due.

Three cars—the Chevy Spark, Mitsubishi Mirage, and Nissan Versa—all come with MSRPs worth less than $15,000. If you need a little more oomph than just bones, dozens of other better vehicles can deliver, and that’s still within $20,000. Start from there.

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Put the full 20% down

The more money you put in, the less you can borrow. When you borrow less, you pay less interest over time and get better interest rates from the start. KBB advises never to break into your emergency savings to make more money, but you should do whatever else you can to top up the down payment.

While KBB says that the old 20% rule is no longer in effect and most sellers are now only asking for a 9%-12% discount, Autotrader and many other reputable sources believe 20% is still the magic number. Just as you are not spending the pre-approved amount to borrow, ignore what the seller will let you drop and put in as much money as possible.

Here’s some math to support this point:

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

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Transfer your loan balance

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

However, not many people will be able to swing even with an extra payment. In this case, you may want to consider transferring some or all of your remaining loan balance to a new credit card with an introductory period of 0% APR. Your card will come with balance transfer checks, which you can use to pay off your car loan and stop paying interest on that debt, according to Chase — but this step only saves you time.

In the beginning, all you have to do to stay in good standing is to make the minimum monthly payments, but when the introductory period ends in 12, 15 or 18 months, you will be in trouble to get the benefits of a double digit credit card that can easily reach 20% – Much higher than any ordinary car loan.

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

Save More: 25 Simple Things To Do To Keep Your Car Costs Low

Make your car win

If your budget doesn’t have much wiggle room, there are only two ways to get more money – 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 to roll back for the reason. You can, of course, drive to an Uber, Lyft, or food delivery service to earn some cash on the side to put into your 12-month loan repayment plan. However, this still requires you to work to pay for your car.

On the other hand, your car can pay its own way, if you loan it when you’re not using it through P2P rental sites like Getaround, Turo, Maven, and HyreCar. Once your car gets a few hundred extra dollars a month, that 12-month schedule will start to feel a lot shorter.

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About the author

Andrew Lisa has been writing professionally since 2001. Andrew has been an award-winning writer and was previously one of the youngest nationally distributed columnists for the nation’s largest newspaper syndicate, the Gannett News Service. He worked as business editor for amNewYork, Manhattan’s most widely read newspaper, and worked as copy editor for, a financial publication at the heart of the Wall Street investment community in New York City.


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