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Can I Pay Off My Car Loan Early?

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When you take out a car loan, you agree to make monthly payments on the loan and pay it off in a certain amount of time. However, you may be interested in making larger monthly payments and paying off the car loan early. Is paying off a car loan early even possible? Yes, you do have the ability to pay your loan off sooner if you like.

Because this is a common question we hear at our finance center, we have provided this guide to discuss:

  • When paying off a car loan early is a good/bad idea
  • How to pay off a car loan early

Is it Good to Pay Off a Car Loan Early?

For many drivers around Fairmont and Kingwood, it can be quite beneficial to pay off a car loan early. However, it will take good financial planning and a lot of diligence to pay off a car loan early and reap the benefits of lower interest paid overall, lower chance of becoming upside down on your loan, and a lower debt-to-income ratio.

When Paying Off a Car Loan Early is a Good Idea

  • Most or all of your other debts are paid off and you want to free up money for other expenses.
  • You have saved up money to pay the loan off early or you have plenty of wiggle room in your budget. Be sure that making larger car payments will not affect your emergency funds or paying off your other bills on time.
  • You want to lower your monthly expenses to plan for a larger financial goal in the future.
  • You want a better debt-to-income ratio.

When Paying Off a Car Loan Early is a Bad Idea

  • You don’t have a lot saved in case of an emergency.
  • You have an exceptionally good interest rate with your current loan.
  • You are trying to build your credit score by making on-time, set monthly payments.
  • Some car loan agreements penalize you for paying the loan off early. Be sure to take a look at the terms of your loan before you decide on paying off the car loan early.

How to Pay Off a Car Loan Early

Wondering how to pay off a car loan early? There are a few options to consider:

  • Make Bi-Weekly Payments – If this option is approved by your lender, divide your monthly car payment by two, then make that payment amount every two weeks. By doing so, you end up making 13 full payments per year instead of 12.
  • Round Up Your Payment Each Month – When you make your monthly payment, round up the amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum –  Make one large extra payment on a yearly basis.
  • Do Not Skip a Payment – Some lenders give you the opportunity to skip one or even two car loan payments every year. Do not do this unless absolutely necessary, because you will end up spending more in interest over time.
  • Refinance the Loan – If you have been making your payments on-time and in full for at least one or two years, you could be a good candidate for refinancing your auto loan. This should only be done if you receive a lower interest rate.

Contact University Toyota for More Information

Is it good to pay off a car loan early? It can be for many drivers in Deep Creek, MD and the surrounding areas. If you have questions about paying off a car loan early, do not hesitate to speak to the finance department at University Toyota. Our finance experts would be more than happy to assist you. Contact us today.

 

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