Can I Pay Off My Car Loan Early?

Curious about whether or not you can pay off a car loan early? Whether you reside in Troy or Dayton, it is totally possible to pay off an auto loan prior to your contract ending. Even though your new or used vehicle has a set auto loan when financing, all you have to do is contact us and we’ll help you adjust your payments. Before you do, let our finance team answer some frequently asked questions regarding paying off a 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?

We often get asked by Dayton drivers, “is it good to pay off a car loan early?” To begin this process, you will need a solid financial plan. As a result, it would be best to consult with a financial advisor and discuss how you plan on paying off your debt. When you do, you’ll decrease the following 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

Wondering about whether or not paying off a car loan is the most sensical option? It’s important to keep in mind that you needed to finance the car to begin with because you weren’t able to pay off the entire amount upfront. Thus, paying off your car loan early only makes the most sense if any of the following have occurred:

• You have little to no other debt which will allow you to save up money to pay off your car 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.

When deciding to pay off your car loan early, you’ll want to ensure that making this decision won’t negatively impact your lifestyle or emergency funds.

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

Although paying off a car loan early seems like a great financial decision, sometimes it’s not always the best option. Here are a few instance when paying off your car loan is not the best 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. In turn, paying off your car loan early may not be beneficial for you.

How to Pay Off a Car Loan Early

After you’ve reviewed our recommendations in order to make an informed decision, here are a few ways you can pay off your car loan early:

• Make Bi-Weekly Payments: Be sure to consult with your lender about this method first as some lenders do not allow bi-weekly payments. If your lender does allow this, you’ll divide your full monthly payment into two and make that your payment every two weeks. As a result, you’ll make thirteen car payments a year, instead of twelve.

• Round-Up Your Payment Each Month: Round your monthly payment amount to the nearest fifty dollars every time you make a 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. While many lenders will allow you to skip one or two payments annually, this should only be done when in financial emergency. If you use the payment pass, this will lengthen your loan term and you’ll accrue additional interest.

• Refinance with a New Car Loan: If you’ve been making your monthly payments on time and have a good payment history after two years, you may be eligible to refinance your car loan. Keep in mind that you’ll only want to refinance if it will result in a lower interest rate. The decreased interest rate will lower your monthly payment.

Learn More about Car Financing with Dave Arbogast!

If you adhere to the right strategy, paying off your car loan in Vandalia can be highly beneficial. Reach out to Dave Arbogast with any additional questions you may have. Also, don’t forget to check out our additional car buying tips such as, “should I buy or lease?” or “can you finance a car with a no credit?”