Can I Pay Off My Car Loan Early?

Tiny car with coins and finance paperwork

 

When you finance a new or used car, you’ll be responsible for making a predetermined monthly payment in full and on time. But, what if you’d like to pay more than your monthly payment? You might be wondering, “Is it good to pay off a car loan early?’ In most cases, yes, it’s a good idea, and it’s 100% possible. In the following guide, the finance team at Sharp Chrysler Dodge Jeep RAM will cover these topics:

  • When paying off a car loan early is or isn’t a good idea
  • How to pay off a car loan early

Determine whether an early payoff is a good idea for you, and get some tips to help you repay your loan the smart way!

 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early takes planning and constancy. If you can create a budget and stick to it, however, you’ll pay lower interest overall. Additionally, there’s a smaller chance of you becoming upside-down on your loan. You’ll also have a lower debt-to-income ratio as well, which means greater financial freedom and a boosted credit score.

When Does Paying Off a Car Loan Early Makes Sense?

  • Your other debts are low and you want to pay off your car loan so you can free up more of your money.
  • Making bigger monthly payments won’t take away from your other bills and monthly living expenses.
  • You have a bigger financial goal in mind, such as a wedding or growing your family, and want to lower your monthly expenses.
  • You’re want to improve your debt-to-income ratio.

When Does Paying Off a Car Loan Early Not Make Sense?

  • You have little to no emergency funds.
  • If you have a fantastic good interest rate on your auto loan, it may be a good idea to continue making your payments as normal.
  • You’re building your credit score by making payments in full and on time.
  • Some car loan agreements include prepayment penalties. In this case, you’ll want to adhere to the policies set by your lender.

How to Pay Off a Car Loan Early

There are a few different ways to pay off a car loan early. Here are a few suggestions you can start putting into practice today:

  • Make Bi-Weekly Payments: Check with your lender to make sure it’s okay, but in many cases, you can increase your payments so you’re making 13 per year rather than 12.
  • Round-Up Your Payment Each Month: Round up to the nearest $50 each time you make a payment.
  • Make One Extra Payment Each Year in One Lump Sum: Instead of rounding up, you can instead make one large payment per year to enjoy the same interest savings.
  • Resist the Temptation of Skipping a Payment: Some lenders will let you skip one or even two car loan payments every year. It can be tempting to do this when you’re struggling financially, but keep in mind that it’ll lengthen your loan term and add even more interest.
  • Refinance with a New Car Loan: After you’ve made one or two years’ worth of on-time, in-full payments, refinancing might be an option for you. However, you’ll only want to refinance if you’re getting a lower interest rate.

Get More Financing & Ownership Tips from Sharp Chrysler Dodge Jeep RAM!

Bottom line: Is it good to pay off a car loan early? Assuming you won’t incur any penalties for early payoff, then yes! If you have additional questions about how to pay off a car loan early, don’t hesitate to contact us online or call us at 931-347-1838. In the meantime, explore our car buying tips and learn more about topics related to financing and insurance.

 

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