Paying Off Car Loan Early

Grand Prairie drivers who choose to finance their new or used car with an auto loan will have to pay a certain amount monthly. Paying it off on time means staying on top of these monthly payments. What if you’d like to pay more than your monthly payment amount? Is this how to pay off a car loan early? Is it good to pay off a car loan early? Paying off a car loan early is a viable, and good option for many Fort McMurray individuals.

In this guide, the finance team at Southview Acura addresses the following topics:

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

Get help determining whether you should start working toward the goal of paying off a car loan early and explore some tips to help you get there, below!

Is it Good to Pay Off a Car Loan Early?

Paying off car loans early takes good financial planning and due diligence. You’ll be rewarded with lower interest paid overall, decreased chances of becoming upside down on your loan, a lower debt-to-income ratio, and get closer to financial freedom.

Paying Off Car Loan Early: When It’s Right

• You have little or no other debts to take care of and want to free up money for other expenses
• If you have extra funds saved up or enough wiggle room in your budget to make larger monthly car payments without affecting your emergency funds and other finances
• You want to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family
• You’re aiming to improve your debt-to-income ratio

Paying Off Car Loan Early: When It’s Wrong

• You don’t have extra funds set aside for emergencies
• If you have an exceptionally 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 could be better served if you set it aside 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 things you can do to pay off your car loan early. Explore these tips, and you can determine which route makes the most sense for yourself:

• Make Bi-Weekly Payments – Confirm with your lender that this method is okay; divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you will effectively be making 13 full payments per year rather than 12.
• Round Up Your Payment Each Month –  Round up the amount to the nearest $50 on each monthly payment.
• Make One Extra Payment Each Year in One Lump Sum – If you’d rather not round up for each monthly payment using the above method, you can instead choose to make one large extra payment per year to achieve the same interest savings.
• Resist the Temptation of Skipping a Payment – Believe it or not, some lenders allow you to skip one or even two car loan payments per year. This may be tempting if you’re in the midst of a rough month financially, but it will only lengthen your loan term and tack on more interest.
• Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, making it easier to pay more than what’s required each month, so you can pay off your loan early.

How to Pay Off a Car Loan Early with Southview Acura!

Depending on your situation, it may be a good idea to pay off a car loan early. For many Sherwood Park drivers, it’s a great option! If you need more information on how paying off your car loan earlier than planned can benefit your financial situation, contact us at Southview Acura. We’re always happy to provide car buying tips you can trust!