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Is it Good to Pay Off a Car Loan Early?

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At Prestman Auto, we know you have questions about auto loans. “Is it good to pay off a car loan early?” and “How can I pay off a car loan early?” are questions we get often. Yes, paying off a car loan early is typically a good deal for most Salt Lake City drivers. Here we help you determine if it’s good to pay off a car loan early based on your unique financial situation. Then we explain how to pay off a car loan early. Feel free to contact us with any questions.

 

 

When Paying Off a Car Loan Early Makes Sense

It takes good planning and plenty of diligence to pay off a car loan early, but you’re rewarded with lower interest, a higher credit score, fewer chances of getting upside down on your loan, and being one step closer to financial freedom. This is when paying off a car loan early is a good idea:

  • You have few other debts to pay off and would like to get your car loan paid so you can have more money for other priorities, such as a new house or retirement
  • You have plenty in savings and enough wiggle room in your budget that making larger car payments won’t deplete your savings or cause you stress
  • You’re looking to improve your debt-to-income ratio, which ultimately improves your credit score

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

If any of these situations apply to your West Valley City lifestyle, it might not be the best time to pay off your car loan early.

  • You don’t have six months of funds set aside for emergencies
  • If your car loan has an exceptionally good interest rate, it may be smart to just keep paying the minimum monthly amount. The money you save may get a larger return when invested elsewhere, like in a retirement fund. 
  • You’re using your on-time, set monthly payments to improve your credit score
  • Some auto loans include prepayment penalties. Check with your lender, and If this is the case, avoid those penalties by sticking to your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

There are a few different ways to pay off your car loan early. Get some ideas below and choose the right one for your situation in West Jordan. 

  • Round Up Your Payment Each Month – When you make a monthly payment, round it up to the nearest $50 or $100.
  • Make Bi-Weekly Payments – Check with your auto lender first to see if it’s okay to use this method. If it is, divide your monthly car payment by two and pay that amount every two weeks. This way, you will make 13 full payments per year rather than 12. 
  • Make One Extra Payment Each Year in a Lump Sum – Use your annual bonus or tax return funds to make one extra payment per year. 
  • Resist the Temptation of Skipping a Payment – Some lenders may try to persuade you to skip a payment or two around the holidays. Don’t do it! It will only lengthen your loan term and cause you to pay even more interest. 
  • Refinance with a New Car Loan – If you’ve made one or two years of on-time, in-full payments, you might be a good candidate to refinance your auto loan. Of course, only do so if you can get a lower interest rate. The lower interest rate will help you pay off your loan earlier.

Finance Your Next Car with Prestman Auto!

Now that you know more about paying off a car loan early, let our finance team know if you need help with a car loan. You can apply for financing online or at the dealership. We take all the hassle out of new car shopping, so don’t wait. Contact us today! 

 

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