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Can I Pay Off My Car Loan Early?

Tiny car with coins and finance paperwork

When you take out an auto loan on a new or used car at our Opelika dealership, you will need to make monthly payments to cover the loan, and they’re scheduled to be made by a certain time. You may be wondering if you can pay more each month than what is required. Can you pay off a car loan early? Yes, and there are some cases where paying off a car loan early can be advantageous for Columbus, GA drivers. Opelika Ford Chrysler Dodge Jeep Ram shares how to pay off a car loan early and when it makes the most sense to do so. 

In this guide, the finance team at Opelika Ford Chrysler Dodge Jeep Ram covers the following topics:

  • When paying off a car loan early is or isn’t a good idea
  • How to pay off a car loan early

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early can save some Auburn drivers money in the form of less interest paid over time — and it can lower your debt-to-income ratio. That can sound great, but it’s not always the smartest decision — especially if you have other debt. 

When Paying Off a Car Loan Early is a Smart Decision

  • Your other debts are under control, and you are looking to pay off the car loan to free up your funds for other purposes
  • You have money saved up to cover the loan or enough wiggle room in your budget, and the larger payments won’t affect your emergency funds and other finances
  • You want to minimize monthly expenses so you can be better prepared for a larger financial goal like retirement or starting a family
  • You would like to improve your debt-to-income ratio

When Paying Off a Car Loan Early Can be Detrimental 

  • You do not have money set aside for emergencies
  • If you have an exceptionally good interest rate
  • You are looking to boost your credit score or build your credit history by making your payments on time
  • Your loan agreement has prepayment penalties
  • You have other, higher-interest debts

How to Pay Off a Car Loan Early

If paying off your car loan early can be beneficial to you, you may be wondering how to get started. Learn how to pay off a car loan early with the guide below:

  • Make Bi-Weekly Payments – Confirm this technique is possible with your lender. Divide your monthly car payment by two, and pay that amount every two weeks. With bi-weekly payments, you end up making 13 full payments per year instead of 12. 
  • Round Up Your Payment Each Month – When you make your monthly payment, round up the amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – You may also make one large extra payment per year if you prefer to do so. 
  • Do Not Skip a Payment – If your lender gives you this option, do not choose to take advantage of it. While it may be tempting, it only prolongs your loan term and requires you to pay more in interest. 
  • Refinance with a New Car Loan – If you have been consistently making payments on time for a year or two, you might be a good candidate for refinancing. If you are able to secure a lower interest rate, you can enjoy lower monthly payments. This makes it less burdensome to pay more than what’s required each month so you can pay off the loan in advance.

Opelika Ford Chrysler Dodge Jeep Ram is Here to Help

Is it good to pay off a car loan early? It can be a great option for many Phenix City drivers. If you would like to know if you are a good candidate for paying off your loan in advance, you can consult the finance experts at Opelika Ford Chrysler Dodge Jeep Ram. 

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