Can I Pay Off My Car Loan Early

Car Key and Pen on Documents

Whether you are financing a new vehicle or a used car, truck, or SUV, your auto loan will have a set monthly payment amount that you must keep up to date with during the course of the loan term. Can you pay off a car loan early? Yes, paying off a car loan early is an option.

This guide from the finance experts at Capital GMC Buick | Regina will explain how to pay off a car loan early and fill you in on whether paying off a car loan is the right choice for you.

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early takes some serious planning, but in the end, you will enjoy a lower interest paid overall, decreased chances of becoming upside down on your loan, and a lower debt-to-income ratio. Find out when paying off a car loan early is or isn’t a good idea below:

When Paying Off a Car Loan Early Makes Sense

  • 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 other financial obligations
  • You are 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 the Best Option

  • You don’t have additional funds set aside for emergencies
  • If you have a really 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 may be better used 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 would of course want to avoid those penalties by adhering to your regularly scheduled payment amount.

How to Pay Off a Car Loan Early

There are a few different ways that White City-area drivers like you can pay off a car loan early. Take a look to determine which route makes the most sense for yourself:

  • Make Bi-Weekly Payments – You’ll need to check with your lender first to ensure that this technique is possible given the terms of your loan. If it is, then divide your monthly car payment by two and make that payment amount every two weeks. This way you will effectively be making 13 full payments per year rather than 12.
  • Round-Up Your Payment Each Month – Round up the amount of each monthly payment to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – Making one large extra payment per year will help you achieve the same interest savings as rounding up your payment each month.
  • Resist the Temptation of Skipping a Payment – Some lenders allow you to skip one or even two car loan payments per year. While this may be tempting if you’re in the midst of a rough month financially, it will only lengthen your loan term and tack on more interest.
  • Refinance with a New Car Loan – If you’ve kept up to date with your only payments for one or two years, you might want to look at refinancing. Of course, you should only refinance if it gets you a lower interest rate. The lower interest rate will lower your monthly payment, which makes it easier to pay more than what’s required each month so you can pay off your loan early.

Learn More About Your Auto Finance Options with Capital GMC Buick | Regina!

Is it good to pay off a car loan early? We think that many Moose Jaw and Lumsden drivers will find that an early auto loan payoff can be beneficial. If you’d like to further explore your options when it comes to paying off a car loan early, please don’t hesitate to contact us. Our team is always happy to provide you with car buying tips to help you navigate the auto financing process.