Can I Pay Off My Car Loan Early?

Car Loan

 

Drivers who finance their new or used vehicle with an auto loan will have to pay a set amount each month to ensure that they can pay off their car loan in time. What if Roseville drivers are interested in paying a little more each month on their monthly payments? Can you pay off a car loan early? Yes, you can, and you can learn about your viable options in this guide from the finance team at Sacramento Chrysler Dodge Jeep Ram. Feel free to contact us if you have any questions along the way.

Is it Good to Pay Off a Car Loan Early?

If you’re wondering how to pay off a car loan early, Sacramento Chrysler Dodge Jeep Ram is here to help! It takes some financial planning and lots of diligence to do so, but in the end, you’ll enjoy lower interest paid overall, decreased chances of becoming upside-down on your loan, a lower debt-to-income ratio in your savings account, and being another step closer to financial freedom. 

Paying Off a Car Loan Early: When It Makes Sense

  • You don’t have many other debts and would like to pay off your loan early and free up your money for other expenses.
  • You have extra money saved up or there’s enough wiggle room in your budget that allows you to make larger car payments without affecting your finances or emergency funds.
  • You want to lower your monthly expenses and plan for larger financial goals like entering retirement or expanding your family.
  • You want to improve your debt-to-income ratio.

Paying Off a Car Loan Early: When It’s Not The Best Option

  • You don’t have any extra money set aside for emergencies
  • If you have an excellent interest rate, it could be better to keep making on-time payments each month. That extra money you would save paying it off early could be put aside for your retirement fund or any financial goals like a mortgage. 
  • You’re trying to build your credit history or raise your credit score
  • Some car loan agreements have prepayment penalties. If this is how your loan is, it’s best to avoid those penalties and stick to your scheduled payment amount. 

How to Pay Off a Car Loan Early

There are several ways you can pay off your loan early. Look at your options below to determine which option is the best for you financially:

  • Make Bi-Weekly Payments – Check that bi-weekly payments are okay with your lender. Divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you will make 13 full payments per year rather than 12. 
  • Round Up Your Payment Each Month – Each time you make your monthly payment, round up the amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – Instead of rounding up each payment, you can choose to make one large extra payment per year to achieve the same interest savings. 
  • Resist the Temptation of Skipping a Payment – Some lenders allow you to skip one or two car payments per year. This is tempting, especially if you’re having a rough month financially, but this just lengthens your loan term and tacks on additional interest. 
  • Refinance with a New Car Loan – After making a couple of years’ worth of on-time, in-full payments, you may qualify for refinancing. Refinancing helps you secure a lower interest rate. Lowering your interest rates can lower your monthly payment, which can make it easier for you to pay off your loan early. 

Get More Car Financing Tips With Sacramento Chrysler Dodge Jeep Ram

Want additional finance tips about paying off your car loan early? Don’t hesitate to contact Sacramento Chrysler Dodge Jeep Ram! We work hard to ensure your car-buying experience is stress- and hassle-free.

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