Can I Pay Off My Car Loan Early?

In most cases, drivers who purchase either a new or used car will secure financing with an auto loan. With that type of purchase, you’ll make monthly payments at a set amount to pay off your loan on time. What happens when you’re able to pay more than the agreed-upon amount? Is paying off a car loan early possible? Yes, you can certainly pay off a car loan early! In our guide, we’ll help you learn how to pay off a car loan early and whether or not it makes sense for your circumstances. Get started with our expert financiers below!

Is it Good to Pay Off a Car Loan Early?

Reducing debt is often wise, but is it good to pay off a car loan early? Paying off a car loan early makes a lot of sense in many cases. You’ll end up paying less in interest, lower your debt-to-income ratio, and become closer to financial freedom. Before you dive into learning how to pay off a car loan early, explore when this option makes the most sense:

When Paying Off a Car Loan Early Makes Sense

• You are responsible for very few debts, and paying off your car loan would help you afford other expenses.
• You have an emergency fund and some wiggle room in your budget that won’t be impacted by excess car payments.
• You’re hoping to lower your monthly expenses to accommodate a larger financial goal, such as buying a home or retiring.
• You hope to improve your debt-to-income ratio.

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

• Your emergency account isn’t well-funded.
• If you have a phenomenal interest rate, it may be smarter to continue making payments as-is. This can help you use your money more effectively by putting it aside for retirement or saving for a mortgage. 
• Your on-time monthly payments are helping improve your credit history and score.
• Some car loan agreements include prepayment penalties. If this applies to your loan, you should avoid taking any action that will incur additional charges.

How to Pay Off a Car Loan Early

Paying off your car loan early can take many shapes and forms. Learn various ways of how to pay off a car loan early here:

• Make Bi-Weekly Payments: Before you attempt this technique, be sure it’s allowed by your lender. Once you’re in the clear, divide your monthly car payment by two, then make that payment amount every two weeks. With this plan, you’ll make 13 full payments over the course of a year, rather than 12. 
• Round-Up Your Payment Each Month: Whenever you make a payment, round up to the nearest $50 to give your payments a boost. 
• Make One Extra Payment Each Year in One Lump Sum: If you prefer to skip the mathematics of determining how much extra to pay and when, you can make a large payment once a year to help you pay your loan off early. 
• Resist the Temptation of Skipping a Payment: While it may seem tempting to take advantage of loan agreements that allow you to skip a payment or two, this is unwise. When you skip a payment, it gets added to the end of your loan. This means you’ll end up paying extra with added interest. 
• Refinance with a New Car Loan: Once you’ve made one or two years’ worth of on-time, in-full payments, you may be able to refinance. Of course, you’ll only want to refinance if you think you can improve your interest rate. With lower interest, it becomes easier and more affordable to pay off your loan ahead of schedule. 

Learn More with Serra Chevrolet Akron!

If you’re still asking, “Is it good to pay off a car loan early?” Serra Chevrolet Akron is here for you! Our friendly team would love to work with you to determine what steps make the most sense for your automotive and financial future. Contact us at your convenience to get expert guidance on all things automotive. In the meantime, feel free to review our other car buying tips to find information you can trust!