Can I Pay Off My Car Loan Early?

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Can you pay off a car loan early? Yes! Whether you live in Mattawan or Galesburg and want to pay off your car loan early, our team at DeNooyer Chevrolet can help! Although your new or used vehicle has a set auto loan when financing, you can adjust your payments by contacting us. Before you do, let our finance team answer some common questions about paying off your car loan early:

  • 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?

You will need a sound financial plan to pay your car loan off early. Thus, it would be best if you met with your financial advisor to discuss how you plan on paying off the debt. When you do, you will decrease a few outcomes:

  • 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

You needed to finance your car due to not being able to pay the entire amount upfront. Hence, paying off your car loan only makes sense if the following has occurred:

  • 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 do not want to put your finances in a bad way. Therefore, you need to ensure that paying off your car loan early will not negatively affect your lifestyle or emergency funds. An ideal situation for paying off your car loan is coming into extra money.

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

Once reviewing our recommendations, you can make an informed decision. If you wish to continue to pay off a car loan early, here is 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.

You can also combine some of these options. Be sure to speak with the finance team to see what you can do to pay off your car loan early. 

Learn More about Car Financing Near Portage with DeNooyer Chevrolet!

You can pay your car loan off early, Portage, drivers with the right strategy and circumstance. Contact us to have us help you or answer any questions. We are happy to help you pay off your car loan early and get you on the road towards financial freedom.

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