Is it Good to Pay Off a Car Loan Early?

Hands Holding Car and Money

When you get a new loan for a vehicle in Collinsville, you agree to a set monthly payment over the length of your contract. But, what if you’d like to accelerate the process? Paying off a car loan early is perfectly feasible in most cases, but is it good to pay off a car loan early? That depends on your particular wants and needs. The finance department at Jim Glover Dodge Chrysler Jeep Ram FIAT is here to run you through your options, so you can make the best decision possible for the Broken Arrow roads ahead.

Pros and Cons to Paying Off a Car Loan Early

Is it good to pay off a car loan early? If you have the motivation and the resources, you can get a lot of benefits out of speeding up your payments. However, it can be a challenge for some customers to keep up with the faster pace. Here are just some of the pros and cons for Tulsa drivers.

Pros

  • If you have few other debts, paying off a car loan early will help free up money for other expenses.
  • If you have enough funds saved up, a larger monthly payment won’t hurt your emergency fund.
  • If you want to lower your monthly expenses, you can reach other financial goals quicker.
  • If you want to improve your debt-to-income ratio, reducing your monthly payments is a great idea.

Cons

  • If you don’t have an emergency fund, increasing your monthly payments can be risky.
  • If you have a great interest rate, you might not benefit from paying off the loan early. You might prefer setting aside the additional money that you would have spent on your vehicle and using it for a special savings fund instead.
  • If you’re using your loan to improve your credit, it might be better to continue to make progress rather than speeding up your loan schedule.
  • If your contract includes prepayment penalties, it’s good to double check how much you’d pay. It might not be worth the hassle.

How to Pay off a Car Loan Early

If you’ve decided you’d like to go ahead, here are a few techniques to help you move the process along easily:

  • Make Bi-Weekly Payments – If your lender approves, you can divide your monthly car payment by two, then make that payment amount every two weeks. This results in 13 full payments per year rather than 12. 
  • Round Up Your Payment Each Month – Make the math easy on yourself and every time you make a monthly payment, just round up the amount to the nearest $50.
  • Lump Sum Payment – Instead of rounding up every month, you can also add an extra payment at your convenience during the year. 
  • Don’t Skip a Payment – While you can usually skip a payment or two without penalties from the lender, stay on track to get the best result. This will help you reduce your total interest.
  • Refinance with a New Car Loan – If you’ve been making payments for a year or two, refinancing can be a great way to secure a lower interest rate. This will help to reduce your monthly payments, which makes it easier for you to pay off your loan early.

Explore Your Financial Options with Jim Glover Dodge Chrysler Jeep Ram FIAT

Want to find out if paying off a car loan early is right for you? Feel free to contact us with any questions about the process, and our financing experts can help you make the best decision for your circumstances.

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