Paying Off Your Car Loan Early
If you’re making a monthly payment on your vehicle and you’re in a position to pay it off before the end of your loan contract, you may be wondering if you can pay off a car loan early and if it’s good to pay off a car loan early. The answer to both is yes! While your auto loan has set payments, you can adjust them by contacting your Long Island City dealership’s finance department. Learn more about the benefits of paying off your car loan early and how to pay off your car loan early with Major World below, or contact our team if you have specific questions about your vehicle loan.
Is it Good to Pay Off a Car Loan Early?
If you want to pay off your car loan early, you’ll need a solid financial plan. While it’s best to meet with a financial advisor to go over your monthly budget. When you do pay off your car loan early, you can take advantage of the following:
- The overall interest paid
- Becoming upside down on your loan
- Lower debt-to-income ratio
Does it Make Sense to Pay off a Car Loan Early?
When you take out a car loan you’re doing so because you cannot pay the entire amount of the vehicle upfront when you purchase it. Your original loan was designed around your budget at the time you purchased your vehicle. However, if one of the following has occurred, you’re in a good position to pay off your car loan early:
- You have little to no other debt, which allows you to free up cash to pay off your loan.
- You have savings you want to apply to your car loan.
- You want to lower out-going expenses to retire or grow your family.
- You’re looking to improve your debt-to-income ratio.
While you may be in a good position to pay off your car loan early, you want to make sure doing so won’t have a negative affect on your finances. Take your time and make all the calculations you need before committing to paying off your car loan early.
When You shouldn’t Pay off a Car Loan Early
While your intentions are good, it’s not always in your best interest to pay off your car loan early. Read below to see when paying off a car loan early isn’t a good option:
- You have no extra money for emergencies.
- You do not have a reasonable interest rate.
- You are looking to build your credit or improve your credit score.
- Some car loan agreements can have prepayment penalties. Thus, paying off your car loan early may not be beneficial for you.
How to Pay Off a Car Loan Early
Once you’ve reviewed your finances and our recommendations and you’ve decided that paying off a car loan early is in your best interest, you have a few different avenues to choose from. The right option for you will depend on your Brooklyn finances, browse the different ways to pay off your car loan early below:
- Make Bi-Weekly Payments: Clear this method with your lender first. Not all car loan lenders will allow bi-weekly payments. But if they do, divide your full monthly amount into two, and make that your payment every two weeks. You will make thirteen car payments instead of twelve for the year.
- Round-Up Your Payment Each Month: Round your monthly payments to the nearest fifty dollars each time you make payment.
- Make One Lump Sum Extra Payment: To achieve the same interest savings as if you did round up your payment, pay a lump sum—a one-time extra payment that is a large amount towards your car loan every year.
- Resist the Temptation of Skipping a Payment: Resist skipping a car loan payment if you can. Many lenders will allow you to skip a payment or two upon consent annually. The ability to skip a payment is meant for financial emergencies only. If you use the payment pass, you lengthen your loan term and acquire additional interest.
- Refinance with a New Car Loan: If you make your monthly payments on time and have a good payment history after two years, you may be eligible to refinance your loan. Remember that you only want to refinance if you can get it at a lower interest rate than what you currently have. The decrease in an interest rate will lower your monthly payment. Use the additional money to pay off your loan early.
It’s also possible to combine some of these payment options, but you’ll need to discuss how you want to pay off your car loan early with your lender and a financial advisor.
Learn More with Major World!
The Major World finance team can help you find the best option for paying off your car loan early. Contact us today to learn more about how to pay off a car loan early, we look forward to helping you drive for mile after mile on Bronx roads!