Can I Pay Off My Car Loan Early?
Chances are you’ve probably taken out a loan when buying a new or used car. If you have enough money on hand, you might be wondering how to pay off a car loan early and if it’s good to pay off a car loan early. Find out more below from the finance experts at Mercedes-Benz of Eugene before deciding what your next move is.
Is it Good to Pay Off a Car Loan Early?
Before we dive into how to pay off a car loan early, let’s answer “Is it good to pay off a car loan early?” Absolutely. While paying off a car loan early has high rewards, it takes a lot of perseverance and planning on your end to make it happen. Some of these benefits include:
- Overall lower interest paid
- Lower chances of becoming upside down on your loan
- A lower debt-to-income ratio
- Financial freedom
When Paying Off a Car Loan Early Makes Sense
- Little or no other debts to take care of
- Enough extra savings to pay larger monthly car payments on time without affecting your emergency funds and other finances
- Trying to lower your monthly expenses to plan for a larger financial goal, such as retirement or family growth
- Trying to improve your debt-to-income ratio
When Paying Off a Car Loan Early Isn’t the Best Option
- Don’t have extra savings set aside for emergencies
- Have an exceptionally good interest rate (The money you’d use to pay your loan off early could be better used for something else like a retirement fund or mortgage.)
- Using your on-time, set monthly payments to build your credit history
- Your car loan include prepayment penalties
How to Pay Off a Car Loan Early
You can pay off an auto loan early in several ways:
- Make Bi-Weekly Payments – Ask your lender first to ensure it’s okay to use this technique. If it is ok, divide your monthly car payment by two and make that payment amount every two weeks.
- Round Up Your Payment Each Month – Every time you make a monthly payment, round up the amount to the nearest $50.
- Make One Extra Payment Each Year in One Lump Sum – Make one large extra payment per year to achieve the same interest savings. For example, some drivers would put their tax returns towards their auto loans.
- Resist the Temptation of Skipping a Payment – Skipping a payment will only lengthen your loan term and tack on more interest.
- Refinance with a New Car Loan – If you have been making one or two years’ worth of on-time, in-full payments, you might be qualified for refinancing. Refinance for a lower interest rate and in turn, a lower monthly payment, so it is easier to pay more than what’s required each month.
Get More Finance Advice From Mercedes-Benz of Eugene!
Learn more about auto financing in the Eugene area in our helpful guides. If you have any questions, feel free to reach out to us and we would be happy to help you out!
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