Paying extra on your car instalment to write off the debt sooner 'is not as easy as you think'

Gugs Mhlungu spoke to resident certified financial planner, Paul Roelofse. 

Listen to their conversation in the audio clip below.

If you drive a vehicle that is financed, you probably want to pay it off as soon as possible to free up the cost of that debt.

"It's always a good idea to pay off debt sooner than later. Vehicles are no exception because they tend to be higher up in the rank of debt in households."

- Paul Roelofse, certified financial planner

In a recent blog post, Roelofse said one of the primary advantages of paying extra on your car instalment is the reduction in overall interest paid. 

But before you go this route, there are a few things you need to consider, adds Roelofse.

He explains in his article that the instalment agreement often requires formal adjustments to account for these payments, which can involve recalculating the remaining balance, adjusting monthly instalments, and potentially affecting your credit score. 

Not all lenders offer flexible terms for extra payments, says Roelofse, and some may apply them in ways that don’t optimise your savings, such as applying them to future payments instead of the principal.

"When it comes to cars, it's a little complicated. It's not as easy as you might think in terms of paying extra."

- Paul Roelofse, certified financial planner

He advises that you first need to speak to the bank or financial institution you're receiving the finance from. 

Secondly, you should check your contract and understand the terms and conditions.

"Speak to the lender and say this is my intention, what's the advantage? Make sure that you understand the extra money you're putting in is optimised in terms of alleviating the debt that you've got."

- Paul Roelofse, certified financial planner

For more financial insights, visit Roelofse's website www.investforlife.co.za

Scroll up to listen to the full conversation.