Can I Pay Off My Car Loan Early?

When financing a new vehicle or a used car, truck, or SUV, in the Irvine area you’ll have an auto loan with a set monthly payment amount for the term of the loan. That you must keep up to date with during the course of the loan term. Can you pay off a car loan early? Yes, an early auto loan payoff is an option. Is it good to pay off a car loan early? It depends on your current financial situation. Learn how to pay off a car loan early and find out whether it’s the right move for you in this guide from the finance team at Weir Canyon Honda. 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early will give you a lower interest paid overall, decreased chances of becoming upside-down on your loan, and a lower debt-to-income ratio. Is it good to pay off a car loan early? It could be if you have planned accordingly. Take a look at the pros and cons of paying off a car loan early:

When Paying Off a Car Loan Early Makes Sense

• 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 room in your budget to accommodate making larger monthly car payments that won’t affect your other financial obligations.
• 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.

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

• You don’t have additional funds set aside for emergencies.
• If you have an excellent 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 may be better used 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.
• If your car loan agreement includes prepayment penalties, you may be better off sticking to your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

Does paying off your car loan early look like a feasible option for you? If so, you’ll have a few different ways to approach an early car loan payoff:

• Make Bi-Weekly Payments – Check with your lender first to ensure that this technique is possible given the terms of your loan. If it is, then divide your monthly car payment by two and make that payment amount every two weeks. This way you will effectively be making 13 full payments per year rather than 12. 
• Round-Up Your Payment Each Month –  Round up the amount of each monthly payment to the nearest $50.
• Make One Extra Payment Each Year in One Lump Sum – Making one large extra payment per year will help you achieve the same interest savings as rounding up your payment each month.
• Resist the Temptation of Skipping a Payment – Some lenders allow you to skip one or even two car loan payments per year. While this may be tempting, it will only lengthen your loan term and tack on more interest.
• Refinance with a New Car Loan – If you’ve kept up to date with your loan payments for one or two years, you could look at refinancing. Note that you should only refinance if it gets you a lower interest rate. With a lower interest rate, you will decrease the amount of your monthly payment, which makes it easier to pay more than what’s required each month in order to pay off your loan early.

Explore Your Auto Finance Options with Weir Canyon Honda!

Now that you have an idea about how to pay off a car loan early, contact Weir Canyon Honda to further explore your loan and lease options. We think that many Tustin and Yorba Linda drivers will find that an early auto loan payoff can be beneficial. Our team will be happy to provide you with car buying tips to help you navigate the auto financing process.