Can I Pay Off My Car Loan Early?

Car Loan

 

When you choose to finance a new or pre-owned vehicle in the Blacksburg, SC area, you’ll have an auto loan that will require you to make monthly payments in order to pay off the car in time. Although, what if you’d like to put more money towards your monthly payment amount? Is paying off a car loan early possible? Yes, paying off a car loan early is a viable option for many Shelby drivers. If you aren’t sure how to go about doing that, Renaldo Honda is here to help! Read on to find out when paying off a car early is a good vs. bad idea, and discover some various ways you can pay off your auto loan quicker. 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early offers several benefits such as lower interest paid overall, decreased chances of becoming upside down on your loan, a lower debt-to-income ratio, and you’ll be one step closer to financial freedom. However, achieving an early-loan payoff takes good financial planning and diligence. 

When Paying Off a Car Loan Early is a Good Idea

  • You have very little to no other debts to pay, thus paying your car loan off can free up money for other expenses. 
  • You have extra money to allocate towards paying off your car loan, without it negatively impacting your emergency funds or other finances. 
  • You’d like to lower your monthly expenses to plan for a larger financial goal such as retirement or buying a home.
  • You’re looking to lower your debt-to-income ratio. 

When Paying Off a Car Loan Early Isn’t a Good Idea

  • You’re stretching yourself financially thin, unable to put money aside for emergencies to take care of other debts. 
  • If you have a really good interest rate, the best option is to continue making on-time payments in the agreed upon monthly amount. The money you’d use to pay off your loan early could be better used for something else such as saving up for a future financial goal. 
  • Making on-time, set monthly payments is a method you’re using to build your credit history and raise your score. 
  • Some car loan agreements include prepayment penalties. If your lender has prepayment penalties, you’ll want to adhere to your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

There are a few ways you can pay off your car loan early. Take a look to figure out which method is best for you:

  • Make a Payment Every Two Weeks –Consult with your lender first to verify that this is permissible. Divide your monthly car payment in half, then make that payment every two weeks. This way you’ll be making 13 full payments per year rather than 12.
  • Round Up Your Payment Every Month – Each time you make a monthly payment, round up the amount to the nearest $50.
  • Make One Extra Payment Each Year – Prefer not to use the method above? Instead, you can choose to make one large extra payment per year to garner the same interest savings. 
  • Try Not to Skip a Payment – While some lenders may allow you to skip one or two car loan payments a year, it will only lengthen your loan term and add more interest. 
  • Refinance with a New Car Loan – If you’ve been making one or two years’ worth of on-time, in-full payments, you might be in a good position to refinance. Although, you should only refinance if it’ll result in a lower interest rate as that will lower your monthly payment.

Get More Car Buying Tips From Renaldo Honda

Is it good to pay off a car loan early? For many Kings Mountain drivers, absolutely! Contact us if you’d like more information on how to pay off your car loan early. Also, be sure to check out more of our car buying tips where you can learn the difference between used vs. CPO, how to trade in a financed car, and much more!

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