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paying off loan

Can I Pay Off My Car Loan Early?

In short, yes! You can pay off your car loan early, however, we don’t recommend this. We’ll explain why in our helpful financing guide below. No matter if you have a new or used vehicle, each auto loan can be adjusted by our financing experts. Before you make any adjustments or pay off your balance, check out our car financing guide below to answer some questions including:

  • Is it good to pay off a car loan early?
  • How to pay off a car loan early?

Is it Good to Pay Off a Car Loan Early?

Thinking about paying off a car loan early? First you’ll need a sound financial plan. It’s best to meet with a financial advisor to talk about how you plan on paying off the debt. Once you do, you will decrease:

  • The overall interest paid
  • Becoming upside down on your loan
  • Lower debt-to-income ratio

When Does Paying Off a Car Loan Early Makes Sense

Since you can’t pay the entinre amount of your vehicle up front, you’ll need to finance your car. There aren’t many reasons to completely pay off the loan unless:

  • Little to no other debt, which allows you to free up cash to pay off your loan.
  • You have savings you want to apply to your car loan.
  • You want to lower out-going expenses to retire or grow your family.
  • Looking to improve your debt-to-income ratio.

With that said, you don’t want to overshift your finances. This means ensuring that paying off your car loan early will not negatively affect your lifestyle or emergency savings. Ideally, you want to come into extra money when paying off your car loan early.

When Paying Off a Car Loan Early Isn’t the Best Option

Although your intentions are good, paying off your car loan early is not always the best option. Here is when paying off a car loan early is not the right decision:

  • You have no extra money for emergencies.
  • You do not have a reasonable interest rate.
  • You are looking to build your credit or improve your credit score.
  • Some car loan agreements can have prepayment penalties. Thus, paying off your car loan early may not be beneficial for you.

How to Pay Off a Car Loan Early

After taking a look at our guide, and taking into consideration our recommendations, you can make an informed decision on whether you wish to continue to pay off a car loan early. If you do, here’s how:

  • Make Bi-Weekly Payments: Clear this method with your lender first. Not all car loan lenders will allow bi-weekly payments. But if they do, divide your full monthly amount into two, and make that your payment every two weeks. You will make thirteen car payments instead of twelve for the year.
  • Round-Up Your Payment Each Month: Round your monthly payments to the nearest fifty dollars each time you make payment.
  • Make One Lump Sum Extra Payment: To achieve the same interest savings as if you did round up your payment, pay a lump sum—a one-time extra payment that is a large amount towards your car loan every year.
  • Resist the Temptation of Skipping a Payment: Resist skipping a car loan if you can. Many lenders will allow you to skip a payment or two upon consent annually. The ability to skip a payment is meant for financial emergencies only. If you use the payment pass, you lengthen your loan term and acquire additional interest.
  • Refinance with a New Car Loan: If you make your monthly payments on time and have a good payment history after two years, you may be eligible to refinance your loan. Remember that you only want to refinance if you can get it at a lower interest rate than what you currently have. The decrease in an interest rate will lower your monthly payment. Use the additional money to pay off your loan early.

These options can also be combined. Contact our finance team to see how we can help you pay off your car loan early.

Learn More about Car Financing near Las Vegas

Get in touch with our team today to see how we can help you get the process started on a new vehicle, refinance your current loan, show you other car-buying tips, and more! We look forward to working with you in the Las Vegas area.

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