How to Pay Off a Car Loan Early
Car loans are one of the most common ways drivers today finance a new or used vehicle at our Seminole-area dealership. With monthly payments, you’ll eventually pay off the loan, and the vehicle you’ve financed will be completely in your name. You can see how many months or how long you have left until the loan is paid off through your financial source.
Many of the customers who visit our Hobbs dealership ask “Is it good to pay off a car loan early?”, or they wonder how to pay off a car loan early. At Tate Branch Hobbs, our finance department can give you a rundown of all the different routes you can take to pay off your car loan ahead of time. Use this guide put together by the financial experts at Tate Branch Hobbs to learn tips on how to pay off a car loan early. If you’re looking to upgrade vehicles, apply for financing to see what deals and specials you can take.
Is It Good to Pay Off a Car Loan Early
A common question we get is, “Is it good to pay off a car loan early?” The answer depends on your current financial stand as you’re paying off the car loan. There are some tell-all signs if paying off a car loan early is in your favor or not. Check out these tips below:
Paying Off a Car Loan Early Is Your Best Option If…
- You have little or no other debts to take care of and would like to get your car loan paid off so you can free up money for other expenses.
- You have enough extra funds saved up or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances.
- You are attempting to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family.
- You’re looking to improve your debt-to-income ratio.
Paying Off a Car Loan Early Isn’t Your Best Option If…
- You don’t have many extra funds set aside for emergencies.
- If you have an exceptionally good interest rate, it may be smarter to just continue making on-time payments in the agreed upon monthly amount. The money you’d use to pay your loan off early could be better served if you set it aside in a retirement fund or for a future financial goal, such as a mortgage.
- You’re using your on-time, set monthly payments to build your credit history or raise your credit score.
- Some car loan agreements include prepayment penalties. If this is the case, you would of course want to avoid those penalties by adhering to your regularly scheduled payment amount.
How to Pay Off a Car Loan Early?
There are many steps that have proven successful for our Midland-area customers when they’re looking to pay off their car loans early. See some of these tips below:
- Make Bi-Weekly Payments – Check with your lender first to ensure it’s okay to use this technique; divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you will effectively be making 13 full payments per year rather than 12.
- Round Up Your Payment Each Month – Each time you make a monthly payment, round up the amount to the nearest $50.
- Make One Extra Payment Each Year in One Lump Sum – If you’d rather not round up for each monthly payment using the above method, you can instead choose to make one large extra payment per year to achieve the same interest savings.
- Resist the Temptation of Skipping a Payment – Believe it or not, some lenders allow you to skip one or even two car loan payments per year. This may be tempting if you’re in the midst of a rough month financially, but it will only lengthen your loan term and tack on more interest.
- Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, making it easier to pay more than what’s required each month so you can pay off your loan early.
Learn How to Pay Off a Car Loan Early at Tate Branch Hobbs
Don’t wait another minute longer. Paying off a car loan early is one of the best ways to get rid of stressful payments. Not only can you increase your credit score doing so, but you’ll have more peace of mind. Contact us at our Andrews-area dealership today for more information!
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