Is it Good to Pay Off a Car Loan Early?
If you finance a new or pre-owned vehicle with an auto loan, you’ll have a set minimum monthly payment, but sometimes Vicksburg drivers consider paying off a car loan early. Are you wondering if it’s good to pay off a car loan early and how to pay a car loan off early? In this helpful guide from the finance team at DeNooyer Ford, we explain why paying off a car loan early is a good option for some people. Feel free to contact us with any questions.
Paying Off a Car Loan Early
It takes diligence to pay off a car loan early, but ultimately it will lower the total amount paid on interest and decrease the odds of becoming upside down on your loan. You’ll also lower your debt-to-income ratio, get closer to financial freedom, and enjoy your Portage lifestyle more.
When Paying Off a Car Loan Early is Wise
- You have a few other debts to take care of and would like to pay off your auto so you can free up funds for other things.
- You need to improve your debt-to-income ratio.
- You have enough flexibility in your budget that paying extra on your monthly car payments won’t negatively affect your emergency funds or other financial goals.
- You want to lower your total monthly expenses so you can tackle a larger financial objective, like early retirement or buying a home.
When Paying Off a Car Loan Early Isn’t Wise
- You don’t have enough money saved for emergencies. You should have at least six months worth of expenses in saving.
- If you have an excellent interest rate, it might be better just to continue making your regular monthly payment amount on time because the money you’d spend to pay off your loan early could be better used for another financial goal, such as a mortgage.
- You’re using the set monthly payments you pay on time each month to build your credit history and improve your credit score.
- Unfortunately, some auto loan agreements include prepayment penalties. Check your loan documents, and if this is the case, you should probably avoid those penalties by adhering to your regularly scheduled monthly payment amount.
How to Pay Off a Car Loan Early
These are some methods on how to pay off your car loan early. Take a look to see which one makes the most sense for your situation.
- Round Up Your Payment Amount Each Month –Each time you make a monthly payment, round it up to the nearest $50 or $100.
- Make Bi-Weekly Payments –Chat with your lender to ensure it’s okay to use this approach; divide your monthly auto loan payment by two and make that payment amount every two weeks. Using this method, you will make 13 full payments per year instead of 12.
- Make an Extra Payment Each Year in One Lump Sum –Instead of rounding up each month, you can make one sizeable extra payment per year and achieve about the same interest savings.
- Don’t Skip a Payment, Even if Your lender Says You Can –Some lenders will allow you (or even encourage you) to skip one or more car loan payments per year. It’s common during the holidays, and it may be tempting if you’re having a challenging month financially. But it will only lengthen your loan term and add on more interest.
- Refinance with a New Car Loan –Once you’ve made a couple of years’ worth of on-time, complete payments, you may be a good candidate for refinancing, but only do it if you qualify for a lower interest rate. The lower interest rate will lower your monthly payments and make it easier to pay more each month so you can pay off your car loan early.
Finance Your Next Car With DeNooyer Ford!
So, is it good to pay off a car loan early? For most Schoolcraft drivers, it is a good idea. The finance team at DeNooyer Ford near Three Rivers is always happy to answer your questions and will work hard to get you into the new Ford of your dreams at a payment you can afford. You can even apply for a loan online. Contact us and let us know how we can be of service.
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