Can You Pay Off a Car Loan Early?

Keeping up with your monthly car payments is essential. But, can you pay off a car loan early? Absolutely! Everyone’s financial situation is different though, so it may not be the best option for all Middletown drivers. Our financiers are here to help you decide if paying off a car loan early is the right move for you. Learn how to pay off a car loan early below, and don’t hesitate to contact us with any questions that come up along the way.

Is it Smart to Pay Off a Car Loan Early?

If you pay off a car loan early, you’ll end up paying less interest overall. Not only that, but you’ll also lower your debt-to-income ratio and decrease your chances of becoming upside down on your car loan. However, paying off a car loan does take some financial planning and isn’t the best move for every Hazlet driver. 

Before we dive into how to pay off a car loan early, you first need to determine if it’s the right decision for you.

When it Makes Sense to Pay Off a Car Loan Early

• You want to improve your debt-to-income ratio
• You want to free up money for other expenses and have little to no other debts to take care of
• You’re able to make larger monthly car payments while still having enough money left over for emergency funds and your other financial obligations
• You’re planning for a larger financial goal and trying to lower your monthly expenses

When it Doesn’t Make Sense to Pay Off a Car Loan Early

• You don’t have much money set aside for emergencies and other financial obligations
• If your interest rate is exceptionally low, you may be better off making regular payments in the amount initially agreed upon. This is especially true if you’re setting the money aside for a mortgage, retirement fund, or a different financial goal.
• If you’re trying to improve your credit score or build your credit history, it’s best to stick to making monthly payments on time every month. 
• Your loan agreement has prepayment penalties. Be sure to carefully read your loan terms if you’re unsure.

How to Pay Off a Car Loan Early

If you’re wondering how to pay off a car loan early and have decided it’s a viable option for you, there are many different ways this can be accomplished:

• Make Bi-Weekly Payments – Divide your monthly car payment by two and make a payment every two weeks. This will result in you making 13 full payments per year as opposed to 12. Just be sure to check with your lender beforehand to make sure this payment method is allowed.
• Round Up Your Payment Each Month – Round up to the nearest $50 every time you make a monthly car payment.
• Make One Extra Payment Each Year in One Lump Sum – Make one large additional payment each year.
• Avoid Skipping a Payment – While some lenders offer the option to skip one or two car payments per year, it will result in you paying more interest over time and a longer loan term.
• Refinance – If you’ve made monthly car payments on time and in full for at least a year or two, you may be eligible for refinancing with a new car loan. However, you should only consider this method if it gets you a lower interest rate. By having a lower interest rate, it’s easier to make larger payments each month and pay off your car loan early.

Connect With Our Finance Experts Today!

Can you pay off a car loan early? Yes, but it’s not the right option for everyone. If you still need help deciding if you should pay off your car loan early, don’t hesitate to let us know! Our finance experts are always happy to assist. We’re just a short drive from Red Bank, so drop by or contact us today. You can explore more car buying tips from Tom's Ford in the meantime.