Paying Off a Car Loan Early

If you’ve financed a new or used car in the Orange Park area, you have a set monthly payment you have to adhere to in order to pay it off, but what if you paid more than that monthly payment? Depending on your situation, paying off a car loan early may be a great idea. You can learn more about how to pay off a car loan early, as well as your particular answer to “is it good to pay off a car loan early?” from the finance team here at Beaver Chevrolet. Just keep reading.

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early takes careful financial planning and disciplined budgeting to pull off, but by doing so, you get a ton of rewards including:

• Lower interest paid overall
• Decreased chances of becoming upside-down on your loan
• A lower debt-to-income ratio
• And being one step closer to financial freedom.

However, pay close attention. Some situations make it inadvisable for Ponte Vedra drivers to pay off their loans early.

When Paying Off a Car Loan Early is a Good Idea

• You have few or no other debts. Once you pay off the loan, you’ll have more money for other expenses.
• You have extra funds and wiggle room in your budget. Then, making larger monthly car payments won’t affect your other finances or emergency funds.
• You want to lower your monthly expenses in order to pursue a larger financial goal, like retirement or growing your family.
• You want to improve your debt-to-income ratio.

When Paying Off a Car Loan Early Isn’t a Good Idea

• You have no emergency fund. Save up for that first.
• Your interest rate is exceptionally good. With a good interest rate, paying off the loan early won’t save you that much money. Putting that extra money into a mortgage or into a retirement fund would be a better investment.
• You have poor credit. Paying on-time monthly payments builds your credit history and raises your credit score. Paying off the loan early would limit the benefit that you’re gaining.
• Your car loan agreement includes a prepayment penalty. Some car loans require you to pay a penalty if you attempt to pay your car loan off early. Be sure to check your loan carefully, because if you try to pay your loan off early and you incur a penalty, you may end up paying more than you would have otherwise.

How to Pay Off a Car Loan Early

Almost any Jacksonville Beach driver can learn how to pay off a car loan early, including you. Check out these different methods, and choose one or two that work for you. Don’t worry about using them all:

• Make Bi-Weekly Payments – First, check with your lender and make sure it’s okay to use this technique. Then, divide your monthly car payment by two. Instead of paying your car payment in one lump sum once a month, make that half payment every two weeks. At the end of the year, you’ll have made 13 full payments instead of 12.
• Round Up Your Payment Each Month – This one is simple; just round up every monthly payment to the nearest $50.
• Make One Extra Payment Each Year in One Lump Sum – Choose a date and make one large extra payment per year.
• Resist the Temptation of Skipping a Payment – Some lenders allow you to skip a payment or two per year. Don’t give in to the temptation! You may have had a rough month financially, but because of interest, that money will snowball into something significantly larger in the long run.
• Refinance with a New Car Loan – Making one or two years’ worth of on-time, in-full payments can make you a good candidate for refinancing. If your credit score improves, refinancing can secure you a lower interest rate; only do it if it will. A lower interest rate will lower your monthly payment, or lower how much you pay in the long run.

The Beaver Chevrolet Finance Center can Tell You More

The answer to, “Is it good to pay off a car loan early?” may depend a lot on your particular loan and situation. If you don’t feel totally equipped to decide on your own, drop by our finance center in Jacksonville or contact us with questions. We’ll be happy to talk. You can even apply for financing online to see what it might be like to refinance with us.