Can I Pay Off My Car Loan Early?

Most Cary drivers don’t have the cash to buy a new or pre-owned vehicle. If you currently have a car loan, you might be wondering about paying off a car loan early. Is it good to pay off a car loan early, and if so, do you know how to pay off a car loan early? Anchor Auto Outlet is here to help! In this simple guide below, the finance team at Anchor Auto Outlet explains when this is a good option and how to pay it off early. Feel free to contact us with any questions.

Is it Good to Pay Off a Car Loan Early?

Paying off your car loan early means you’ll save money on overall interest paid, will have less risk of becoming upside down on your loan, will have a lower debt-to-income ratio, and be one step closer to more financial freedom. 

When Paying Off a Car Loan Early Makes Sense

• You have little or no other debts to pay off and would like to get your auto loan paid off so you’ll have money for other financial goals.
• You have enough funds saved up or flexibility in your budget that making larger car payments each month won’t negatively impact your emergency funds or your financial situation.
• You want to lower your monthly expenses to progress towards a more significant financial goal, such as retirement, buying a home, or growing your family.
• You need to improve your debt-to-income ratio

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

• You don’t have much money saved for emergencies
• Suppose you have an excellent interest rate. In that case, it may be wiser to continue making on-time payments of the minimum amount because the money you’d use to pay your loan off early may be better used investing in a retirement fund or something else, such as a mortgage.
• You’re using your on-time, set monthly car payments to improve your credit score.
• Unfortunately, some car loan agreements include prepayment penalties. Check your loan paperwork, andif this applies to you, you should adhere to your regularly scheduled monthly payment amount. 

How to Pay Off a Car Loan Early

There are a few methods to pay off a car loan early. Take a look at them below to decide which route works for you.

• Make Bi-Weekly Payments – Check with your lender first that it’s okay to use this method. If so, divide your monthly car payment by two, and make that payment amount every two weeks. Using this method will make 13 payments per year rather than 12. 
• Make One Extra Payment Each Year in One Lump Sum – Use your Christmas bonus, profit share, or tax refund to make one sizeable extra payment per year.
• Round Up Your Payment Each Month – Every time you make a monthly payment, round up the amount to the nearest $50 or $100.
• Don’t Skip a Payment – Some lenders will allow you to skip one or two car loan payments yearly, especially near the holidays. It may be tempting if you’re experiencing financial hardship, but it will only extend your loan term and make you pay more interest.
• Refinance with a New Car Loan – If you’ve made one or two years’ worth of on-time, complete payments, you could be a good candidate for refinancing if you can secure a lower interest rate. The better interest rate will get you a lower monthly payment and make it easier to pay more than the minimum amount required each month so you can pay it off early.

Finance Your Next Vehicle with Anchor Auto Outlet!

Now that we’ve answered the question, “Is it good to pay off a car loan early?” if you want more information about how to pay off a car loan early, refinancing, or getting a loan with bad credit, contact our finance team. You can apply for a loan online and even get a value for your trade-in from the comfort of your home!