Is Paying Off a Car Loan Early Possible?

Person Saving Money in Piggy Bank

 

Most drivers in Mansfield and Ashland opt to finance their new vehicles rather than paying for them in full at the time of purchase. Drivers who take out a loan are required to make monthly payments until the terms of the loan are complete. However, some drivers may be interested in paying off a car loan early by making larger or more frequent monthly payments. Is this possible? Yes, in some cases, paying off a car loan early is possible, but it may not be a good idea for some drivers.

 

 

The guide below from the finance experts at Spitzer Motors of Mansfield CDJR covers the following topics:

  • Is it good to pay off a car loan early
  • How to pay off a car loan early

Is it Good to Pay Off a Car Loan Early?

There are several reasons why paying off a car loan early is an attractive option for Galion drivers like you. It can lead to lower interest paid overall, decreased chances of becoming upside down on your loan, and a lower debt-to-income ratio. However, it can be a challenge for some, and it could actually be detrimental in some cases.

When Paying Off a Car Loan Early Makes Sense

  • You have taken care of most or all of your other debts.
  • You have extra funds currently available or there is enough room in your budget to make a larger payment without compromising the emergency funds you have set aside.
  • You want to lower your monthly expenses so you can work toward other financial goals.
  • You would like a better debt-to-income ratio.

When Paying Off a Car Loan Early Could be Detrimental

  • You do not have an emergency fund.
  • You received a good interest rate on your loan.
  • You are working on boosting your credit score by making on-time, set monthly vehicle payments.
  • There could be a penalty for paying the loan off early.

How to Pay Off a Car Loan Early

If you are thinking about paying off a car loan early, there are a few ways you can go about this. It is a good idea to ask your loan provider how to pay off a car loan early, as they may not allow certain methods.

  • Make Bi-Weekly Payments – Divide your monthly car payment by two. This is the amount you will pay every two weeks. Over the course of a year, you will end up making 13 full payments instead of 12.
  • Round Up Your Payment Each Month – Round up to the nearest $50 each time you make a payment.
  • Make One Extra Payment Each Year in One Lump Sum – Make one large extra payment each year.

If you have made one or two years’ worth of on-time, in-full payments, you may want to look into refinancing your loan if you can secure a lower interest rate. With a lower interest rate, it is easier to pay more than what’s required each month.

Contact Spitzer Motors of Mansfield CDJR for More Information

So, is it good to pay off a car loan early? It can be for many Ontario drivers like you! If you are wondering whether this option makes sense for you, feel free to reach out to Spitzer Motors of Mansfield CDJR for more information. We would be happy to help you explore your options.

 

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