Can I Pay Off My Car Loan Early?
Beverly Hills drivers who decide to finance their new or used car by applying for an auto loan will have set monthly payments that they have to follow to pay off the loan on time. Many car shoppers often ask if they can pay more than the monthly car payment, as well as how to pay off a car loan early. Our financial experts are answering these questions and more in this handy guide to paying off your car loan early.
Is it Good to Pay Off a Car Loan Early?
With excellent financial paying and incredible diligence, it’s possible to pay off your car loan early. In the end, you’ll get rewarded with lower interest paid of, reduce your chances of becoming upside-down on your loan, lower your debt-to-income ratio, and get one step closer to financial freedom.
Is Paying Off a Car Loan Early The Right Option?
- You have little or no other debts to take care of, and you’re trying to get your auto loan paid off to free up funds for other expenses.
- You either have enough significant money saved up, or there’s enough wiggle room in your budget to make larger monthly car payments without affecting your emergency funds and other finances.
- You’re trying to lower your monthly expenses to plan for a larger financial goal like entering retirement, or you’re trying to grow your family.
- You’re interested in improving your debt-to-income ratio.
When Paying Off a Car Loan Early Wouldn’t Be the Best Option
- You don’t have any extra money set aside for emergencies.
- If you have an incredibly low interest rate, it may be smarter to just keep making on-time payments each month. The money you’d use to pay your loan off early may be better to put towards a retirement fund or for a future financial goal like a down-payment for a mortgage.
- You’re using your on-time, monthly payments to build your credit history or raise your credit score.
- Some car loan agreements include prepayment penalties.If this is the case, it’s best to avoid those penalties by adhering to your regularly scheduled payment amount.
How to Pay Off a Car Loan Early
There are numerous ways to pay off your car loan early. Explore your options below to decide which route is the best one to take:
- Make Bi-Weekly Payments – Make sure it’s okay with the lender to make these types of payments. You will divide your monthly car payment by two, then make that payment amount every two weeks. With this method, you’re making 13 full payments per year rather than 12.
- Round Up Your Payment Each Month – When you’re making your monthly payment, round up the amount to the nearest $50.
- Make One Extra Payment Each Year in One Lump Sum – Instead of rounding up each payment, another option is making one large extra payment per year to get the same interest savings.
- Resist the Temptation of Skipping a Payment – Some lenders allow you to skip one or even two car loan payments per year. While this is a tempting offer when things are tight, it just lengthens your loan term and adds more interest.
- Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you could be an excellent candidate for refinancing. Of course, it’s best to only refinance if you’re securing a lower interest rate. Having a lower interest rate lowers your monthly payment, which makes it easier to make larger payments to pay off your loan early.
Get Additional Car Financing Tips With Jaguar Los Angeles!
We’ve answered, “Is it good to pay off a car loan early?”, and our finance team is here to answer any additional questions that you may have. Don’t hesitate to reach out to us for more helpful car buying tips.
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