How to Pay Off a Car Loan Early

Finance Paperwork with Glasses

 

Wondering about paying off a car loan early? You’ll be happy to know it’s possible and may be the right option for you. If you have a new or used vehicle that you’re making payments on, talk to the team at the Dayton-area dealership for ways to adjust your payments. With this helpful guide, we’ll walk you through whether or not it is good to pay off your car loan early and how you can go about it. 

Is it Good to Pay Off a Car Loan Early?

The first step Troy drivers need to do is review their budget plan. A financial advisor can help with creating a sound plan, however, when looking to pay off a car loan early, it’s a good idea for drivers to know their current standing. Reviewing a budget can help decrease a few of these outcomes:

  • The overall interest paid
  • Becoming upside down on your loan
  • Lower debt-to-income ratio

When to Pay Off a Loan Early

Is it a good idea to pay off a car loan early? Drivers should first make sure that their lifestyle and emergency funds won’t be affected with the adjusted loan payments. Otherwise, drivers who financed their car will find that paying off a car loan early is a good option if these reasons apply: 

  • There is little to no outstanding debt. The extra room in the budget can be used towards the loan. 
  • Drivers have additional savings they want to apply to the loan. 
  • It’s a good idea to pay early, if drivers are looking to plan ahead for retirement or growing a family.
  • Those wanting to improve their debt-to-income ratio.

When to Not Pay Off a Loan Early

Trying to get ahead on a loan is good idea, but it may not be the best options right now if any of these factors apply:

  • There is no money set aside for emergencies.
  • If drivers don’t have a reasonable interest rate.
  • Drivers looking to build or improve their credit score might not want to pay off a loan early.
  • Check the terms of the loan, some loans have a prepayment penalty attached and will be detrimental to the loanee.

Tips for How to Pay Off a Car Loan Early

There are a couple way Sidney drivers can go about paying off a car loan early. 

  • Bi-Weekly Payments: Bi-weekly payments allow drivers to divide their full monthly payments into two, and make a payment every two weeks. This means there will be thirteen yearly payments instead of twelve. Verify with the lender first as not all lenders allow bi-weekly payments. 
  • Rounding Up Payments: Rounding up the monthly payments to the nearest fifty dollars allows drivers to get a little ahead on their loan. 
  • Extra Lump Sum Payment: Making a large one-time extra payment every year allows loanee’s to achieve the same interest savings if they were to round up payments.
  • Resist Skipping a Payment: While lenders may allow Tipp City drivers the wiggle room to skip a payment with approval, it’s typically intended for financial emergencies only. As a result, the length of the loan will be extended and additional interest may be applied.
  • Refinance with a New Car Loan: Loanees who show a history of timely and fully payments may be eligible for a refinanced loan after two years. Loans should only be refinanced if it comes with a lower interest rate as a lower rate lowers the monthly payment. The difference from the lower payments can also be used to pay off a car loan early. 

How to pay off a car loan early depends on the driver’s individual situation. Some may find a combination of methods work for them. 

Learn More Car Buying Tips with Voss Honda! 

If you are still wondering if it is a good idea to pay off a car loan early, talk to the team in our finance center. Shopping for a new vehicle? Browse our inventory of new Honda models and learn how to qualify for a car loan.

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