Is It Good to Pay Off a Car Loan Early?

Many Portage and Schoolcraft drivers ask us if paying off a car loan early is possible, and the answer is yes in most cases. But, is it good to pay off a car loan early? That can vary, depending on your financial situation. DeNooyer Ford is here to walk you through the process, so you can determine the best route for you. Learn how to pay off a car loan early, and get more financial advice with our experts in Vicksburg!

Advantages of Paying Off a Car Loan Early

What are the benefits of paying off a car loan early? If you have the financial means to accelerate your loan repayment, you’ll get closer to freeing up funds for other purposes. You’ll pay less interest and have a lower debt-to-income ratio. Here are some things to consider:

• Do you have debt? If you have little to no debt, it might be easier to pay off your loan early.
• Do you have ample savings? Then you won’t be constrained by a higher monthly payment.
• Do you want to lower outgoing expenses? Paying off your loan early will free up money for retirement funding or family planning.

Disadvantages of Paying Off a Car Loan Early

So, what are some of the disadvantages of paying off your car loan early? If your finances are strained, it doesn’t make sense to rush through the repayment process. You’re better off sticking with your current financial plan, so you can make prompt payments without readjusting your budget. Some things to keep in mind:

• Is your budget tight? There’s no need to make extra payments on your auto loan if you don’t need to do so.
• Is your interest rate pretty good? You might not benefit as much from accelerating your loan repayments as someone with a poor interest rate.
• Are you trying to build your credit? Making prompt repayments is more important than rushing through the process, so taking it slow and steady is a great way to improve your credit score.
• Does your loan agreement include prepayment penalties? Factor in those fees when determining whether or not to pay off your loan early.

How to Pay Off a Car Loan Early

Let’s say you’ve decided that paying off your car loan early is the best option. How do you repay your loan faster? Here are five methods to try:

• Make Bi-Weekly Payments: If your lender allows it, divide your full monthly amount into two. Make your payment every two weeks, so you make a total of thirteen payments instead of twelve for the year.
• Round-Up Your Payment Each Month: Make the math easy on yourself, and round your monthly payments to the nearest fifty dollars each time you make a payment.
• Make One Lump Sum Extra Payment: Instead of rounding up your monthly payments, you can simply make an extra lump sum payment at the end of the year.
• Resist the Temptation of Skipping a Payment: Many lenders allow you to skip one or two payments without penalty but try to avoid it if possible. This helps you stay ahead of the game when paying off your loan.
• Refinance with a New Car Loan: After a year or two of prompt payments, you might qualify for better rates. Consider refinancing your loan to get a lower interest rate. Then you can use the money saved to pay off your loan earlier.

Get Expert Financial Advice at DeNooyer Ford

What’s the best option for you? The team at DeNooyer Ford is happy to help, so don’t hesitate to reach out to us with any questions. Contact us or visit our dealership in Vicksburg. We can walk you through the pros and cons of paying off a car loan early, and help you take the next steps.