Can I Pay Off My Car Loan Early?

When you choose to finance a new or pre-owned vehicle, you’ll have a monthly payment that you’ll need to pay in full and on time. Eventually, the loan will be paid off, and you’ll officially own the car. But, what happens if you want to pay off your loan early? Can you pay off a car loan early? You can! 

Paying off a car loan can be beneficial for many drivers, but there are some points to consider before taking that final step. Read on to learn more from Whitten Brothers Mazda about paying off a car loan early and when it makes sense. 

Is It Good to Pay Off a Car Loan Early?

Paying off a car loan early affords a lot of benefits. You’ll pay less interest overall, because you’re repaying the car loan ahead of schedule. You’ll also eliminate the chance of becoming “upside down” on your loan, or owing more on your car loan than what the car itself is worth. Paying off a car loan early can give you financial freedom, allowing you to put your money toward another bill or expense. 

When Paying Off a Car Loan Early Makes Sense

• You have few other debts and want to repay your loan to free up your money. 
• You can afford to make larger payments without falling behind on other bills and financial obligations. 
• You want to remove as many financial obligations as possible, so you can begin saving for a family, retirement, etc. 
• You want to improve your debt-to-income ratio. 

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

• You don’t have the room in your budget to make larger payments. 
• Do you have a really good interest rate on your car loan? If so, you might be better off sticking to your standard repayment schedule. You could put the money you’d use to pay off your loan early into savings. 
• If you’re trying to raise your credit score, sticking to your normal payment schedule makes sense. 
• Some car loan agreements include prepayment penalties. Check with your lender before paying your loan off early. 

How to Pay Off a Car Loan Early

If you’re ready to pay off your loan early, you can take the following steps to increase the amount and/or frequency of your payments: 

• Make Bi-Weekly Payments – Divide your monthly car payment by two, then pay that amount every two weeks. This equates to 13 full payments per year, rather than 12. 
• Round Up Your Payment Each Month – When you make a monthly payment, round up the amount to the nearest $50.
• Make One Extra Payment Each Year in One Lump Sum – Instead of rounding up, make large extra payment per year.
• Consider Refinancing – After about one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Refinancing is a good way to get a lower interest rate and monthly payment. Only refinance if it benefits your financial situation. If you can get lower rates, you’ll have an easier time paying your loan off early. 

Learn More About Auto Financing With Whitten Brothers Mazda

To recap: Is it good to pay off a car loan early? In many cases, it’s a good idea to pay off your car loan early, if possible. 

For more information on car financing, check out our car buying tips hub. Contact us online or call us at 804-630-0068 to learn more about our financing services and we can help you finance the Mazda you truly want.