Can I Pay Off My Car Loan Early?

Congratulations on your quality used vehicle purchase from Automotive Avenues near Toms River. If you’re like 80% of Americans, you took advantage of an auto loan to buy your car, truck, or SUV. You’ve got your monthly payments set up, and things are going great with your new ride.

What if you have some extra money in your budget and you want to pay more than just the required monthly payment for your vehicle? That means you’ll pay off your auto loan early. Is it good to pay off a car loan early? Are you thinking, “Can I pay off my car loan early?”

These are excellent questions, and we’ll happily answer them. We will also look at:

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

Is it Good to Pay Off a Car Loan Early?

Yes, in general, it is good to pay off a car loan early. It takes good financial planning and a lot of diligence. You’ll pay lower interest overall, decrease your chances of owing more than your car is worth, have a lower debt-to-income ratio, and be closer to having the debt paid off.

Can I Pay Off My Car Loan Early?

Yes, you absolutely can! The only snafu is that some lenders might have a fee associated with paying off a car loan early. But, in general, lenders want you to pay off the loan whenever you can. 

When Paying Off a Car Loan Early Makes Sense

• You have little or no other debts that require your attention for your Trenton family. You’d like to pay off your car loan so you can free up money for other expenses.
• You have enough extra funds saved up or enough wiggle room in your budget. How to pay off a car loan early should happen without it being a burden on your other monthly expenses or financial goals.
• You want to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family.
• You’re looking to improve your debt-to-income ratio by eliminating debt.

When Paying Off a Car Loan Early Isn’t the Best Option

• You don’t have much extra funds set aside for emergencies or you have a tight budget.
• If you have an exceptionally good interest rate, you might consider paying the already-low payment every month. The money you’d use to pay your loan off early could go towards retirement or a mortgage.
• You’re using your on-time, set monthly payments to build your credit history or raise your credit score with a better credit history.

• Some car loan agreements include prepayment penalties. Avoid those penalties unless the penalties are less than the interest you’ll save by paying off the car loan early.

How to Pay Off a Car Loan Early

Now, we’ll show you some pro tips on how to pay off a car loan early.

• Make Bi-Weekly Payments – Divide your monthly car payment by two, then make that payment amount every two weeks. You’ll make 13 full payments per year rather than 12, essentially paying one more month of payments. Check with your lender if this is okay, first.

• Make sure you designate the extra money you pay to go toward the principal and not the interest.

• Round Up Your Payment Each Month – Each time you make a monthly payment, round up the amount to the nearest $50.

• Make One Extra Payment Each Year in One Lump Sum – If you’d rather not round up for each monthly payment using the above method, consider making one extra payment per year that’s larger. Determine the amount using the rounding up to $50 method.

• Resist the Temptation of Skipping a Payment – Some lenders let you skip a payment or two. But that just prolongs the loan. It’s better to avoid skipping a payment.

• Refinance with a New Car Loan – Consider refinancing after making a year or two of regular, on-time payments. You might get a lower interest rate, meaning your monthly payments should be lower. At this point, it may be easier to pay off a car loan early.

Learn More at Automotive Avenues!

Is it good to pay off a car loan early? For many Howell Township drivers, the answer is yes! If you have more questions, contact us or call 856-539-0105. Our team in Wall is happy to help in any way we can!