Can I Pay Off My Car Loan Early?

Is it good to pay off a car loan early? Paying off a car loan early has its advantages, but is it advantageous for every Lima driver? The finance center at Exceptional Motorcar has put together a helpful detailing how to pay off a car loan early and its potential advantages. After taking a look at our guide, drivers are invited to visit our dealership online or in person to go over their financial options!

Is Paying Off a Car Loan Early a Good Option for You?

Is it good to pay off a car loan early? It takes good financial planning and a lot of diligence to pay off a car loan early. However, doing so can get you a lower interest paid overall, decreased chances of becoming upside down on your loan, a lower debt-to-income ratio, and allow you to be one step closer to financial freedom.

Here’s how to know if it’s a good idea for you to pay off that car loan early:

When Paying Off a Car Loan Early Is a Good Option

• You have little or no other debts to take care of and would like to get your car loan paid off so you can free up money for other expenses.
• You have enough extra funds saved up or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances.
• You’re attempting 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.

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

• You don’t have much extra funds set aside for emergencies.
• If you have an exceptionally good interest rate, it may be smarter to just continue making on-time payments in the agreed-upon monthly amount. The money you’d use to pay your loan off early could be better served if you set it aside in a retirement fund or for a future financial goal, such as a mortgage.
• You’re using your on-time, set monthly payments to build your credit history or raise your credit score.
• Some car loan agreements include prepayment penalties.If this is the case, you’d want to avoid those penalties by sticking to your regularly scheduled payment amount.

Paying Off a Car Loan Early Step by Step

There are a few methods Toledo drivers can follow to pay off your car loan early. Below, we’ve outlined how to pay off a car loan early in simple steps that anyone can follow:

• Bi-Weekly Payments: Check with your lender first to ensure it’s okay to use this technique. Divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you’ll effectively be making 13 full payments per year rather than 12.
• Rounding Up Your Payment: Each time you make a monthly payment, round up the amount to the nearest $50.
• One Extra Payment Each Year: If you’d rather not round up for each monthly payment using the above method, you can instead make one large extra payment per year to achieve the same interest savings.
• Don’t Skip Payments: Believe it or not, some lenders allow you to skip one or even two car loan payments per year. This may be tempting if you’re in the midst of a rough month financially, but it’ll only lengthen your loan term and tack on more interest.
• Refinance: Once you’ve made one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, making it easier to pay more than what’s required each month, so you can pay off your loan early.

Consider Paying Off Your Loan Early in Defiance!

So, is it good to pay off a car loan early? It certainly has many advantages, but you’ll need to make sure it’s okay with your lender. You’ll also want to make sure that paying off your car loan early makes sense. Contact us online or make the drive to us from Findlay to speak with our finance experts. Don’t forget to check out our website for more helpful car-buying tips!