Can You Pay Off A Car Loan Early?

Hands Holding Car and Money

If you are a Jackson driver that financed their new or used vehicle, your auto loan will come with a monthly payment amount, and you must keep on top of to pay it off in time. If you are willing and capable of paying more than your monthly payment, then paying off the car loan early will get easier. This is a solid option for Brandon drivers looking to pay off their loan early. 

Here is a guide from the finance team at Wilson KIA to address when paying off a car loan early is and is not a good idea, and how to pay off a car loan early. We are happy to help determine whether moving towards the goal of early car loan payoff is a good idea and some tips to help you get there!

Paying Off Car Loan Early – When Does it Make Sense?

If you want to pay off your car loan early, it takes good financial planning. The benefit is you have lower interest paid and you decrease the chance of going upside down on your loan. Paying off your loan early also lowers your debt-to-income ratio and helps you move towards financial freedom. 

When Is It a Good Idea?

  • If you have little or no other debts to take care of 
  • If you have enough extra funds saved up or the wiggle room in your budget for making larger monthly car payments
  • You are trying to lower your monthly expenses to plan for a larger financial goal, like entering retirement or growing your family
  • You want to improve your debt-to-income ratio

When Not to Pay Off Your Loan Early

  • You don’t have extra funds set aside for emergencies
  • If you have a great interest rate, it may be smarter to just continue making on-time payments in the agreed upon monthly amount. You can improve your credit and use the money you’d use to pay your loan off early to put in a retirement fund or for a future financial goal.
  • Some car loan agreements include prepayment penalties. 

Can You Pay Off a Car Loan Early: How to Guide

There are a few methods you can follow to pay off your car loan early. Take a look to determine which route makes the most sense for yourself:

  • Make Bi-Weekly Payments – Confirm with your lender that it’s ok, then divide your monthly car payment by two and make that payment amount every two weeks. This way you are making 13 full payments per year rather than 12. 
  • Round Up Your Payment Each Month – Round up the amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – You can make one large extra payment per year to achieve the same interest savings. 
  • Don’t Skip on Your Payments – Lenders will sometimes allow you to skip one or even two car loan payments per year. If you’re in the midst of a rough month financially it can be tempting, but it will lengthen your loan term and interest payments.
  • Refinance – If you make one or two years of full and on-time payments, you might be a good candidate for refinancing. You should only refinance if you can get a lower interest rate. This will lower your monthly payment and make it easier to pay more than what’s required each month so you can pay off your loan early.

Learn More About Loans with Wilson KIA!

Is it a good idea to pay off your car loan early? Ridgeland drivers may find it beneficial to do so! If you are interested in learning more about paying off your car loan early and how to plan, contact our finance team at Wilson KIA. We can help you with any car buying tips to help you move forward with the process. 

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