Pay Extra on Car Loan? Find Relief & Save More (2026)

Are you feeling bogged down by your car loan repayments and wondering if there's a way to pay it off faster? Paying extra on your car loan can be a smart financial move, potentially saving you money on interest and helping you own your vehicle outright sooner. But before you start making additional payments, it's important to understand the details and implications. This guide will walk you through everything you need to know about paying extra on your car loan in Australia in 2026.

Understanding Paying Extra on Your Car Loan

When you take out a car loan, you agree to repay the principal amount plus interest over a set term. However, many borrowers don't realise that they're not locked into making only the minimum required payments. Paying more than the minimum can reduce the total interest paid over the life of the loan and shorten the loan term. This practice is known as making extra repayments.

Extra repayments can be made in several ways: increasing your regular payment amount, making lump sum payments, or a combination of both. However, not all loans are structured the same, and some may have restrictions or fees associated with extra payments.

Interest Rates, Requirements, and Options

As of 2026, the interest rates for car loans in Australia typically range from 6.49% to 12%, depending on factors like your credit score, the lender, and the loan term. Whether you're considering a fixed-rate or variable-rate loan, understanding how these rates impact your loan can help you make informed decisions about extra payments.

Here are some common requirements and options you might encounter:

When considering extra payments, check with your lender about any restrictions or fees. Some fixed-rate loans might charge break fees if you repay too much too quickly, while variable-rate loans often offer more flexibility.

Steps to Make Extra Payments on Your Car Loan

Here's how you can start making extra payments on your car loan:

1. Review Your Loan Agreement: Start by reviewing your loan agreement to understand the terms related to extra repayments. Look for any fees or restrictions that might apply.
2. Contact Your Lender: Get in touch with your lender to confirm your understanding of the terms and to discuss your intention to make extra payments. This is especially important if you're unsure about any potential penalties.
3. Create a Budget: Determine how much extra you can afford to pay each month. Look at your income and expenses to find areas where you can cut back.
4. Set Up Automatic Payments: If your lender allows it, consider setting up automatic payments for the extra amount. This helps ensure consistency and reduces the temptation to spend the money elsewhere.
5. Monitor Your Progress: Regularly check your loan balance to see how your extra payments are impacting the principal and interest. This can be a motivating factor to continue with extra payments.

Tips and Considerations

Here are some expert tips to consider when making extra payments on your car loan:

• Check for Redraw Facilities: If your loan offers a redraw facility, you may be able to access your extra repayments in the future if needed. This can provide financial flexibility.
• Prioritise High-Interest Debt: If you have other debts with higher interest rates, like credit card debt, consider prioritising those before making extra car loan payments.
• Consider Refinancing: If your loan terms are restrictive, it might be worth considering refinancing through a platform like Esteb and Co, which offers access to over 83 lenders, potentially providing better terms.
• Understand Tax Implications: If you're using your car for business purposes, consult with a tax advisor to understand any potential tax benefits or implications of extra payments.
• Stay Informed: Keep an eye on interest rate trends and economic forecasts, as these can affect your loan and repayment strategy.

Frequently Asked Questions

1. Can I make extra payments on my fixed-rate car loan?
   Yes, but be aware that some fixed-rate loans may impose penalties for extra payments, known as break fees. Always check with your lender first.
2. How do extra payments reduce my car loan interest?
   Extra payments reduce the principal balance faster, which means less interest accrues over time, saving you money in the long run.
3. Is it better to make regular extra payments or a large lump sum?
   Both methods have benefits. Regular extra payments can fit better into a monthly budget, while a lump sum can significantly reduce your principal. Choose the method that aligns with your financial situation.
4. What happens if I can't make an extra payment one month?
   If you miss an extra payment, it won't typically affect your loan negatively, as long as you continue to meet your minimum repayment obligations.
5. Should I pay off my car loan early?
   Paying off your car loan early can save you money on interest. However, ensure that there are no financial penalties for doing so, and consider if the funds could be better used elsewhere.
6. Can I access my extra repayments if needed?
   If your loan includes a redraw facility, you may be able to access extra repayments. Check your loan terms or consult with your lender for details.
7. How can Esteb and Co help with my car loan?
   At Esteb and Co, we have access to over 83 lenders, which means we can help you find flexible loan options that allow for extra repayments and align with your financial goals.