Paying Off a Car Loan Early

No one likes being saddled with debt, and paying off a car loan early can be a great financial move for some Nixa drivers. But there are right ways and wrong ways to do it. Is it good to pay off a car loan early when you don’t have any early payment restrictions? Absolutely! Learn all about how to pay off a car loan early—the Thompson Cadillac finance team can tell you how to pay off a car loan early and more with their car-buying tips. 

Is it Good to Pay Off a Car Loan Early?

It certainly can be good to pay off a car loan early! We know most Ozark and Republic drivers look at their car payments and consider where else that money can be spent, or the perks that come with early loan pay-off—less interest paid, decreased chances of being upside-down on the loan, a lower debt-to-income ratio, and just the freedom that comes with being able to forget about a monthly bill. Let’s see if it makes sense for you to pay off your 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 wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances
• 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 much extra funds set aside for emergencies
• If you have an exceptionally good 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 could be better served if you set it aside 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

Something very important to keep in mind is that some loans have restrictions against early pay-off. Make sure you read your original loan paperwork carefully before you do something that could lead to unwanted fees. 

How to Pay Off a Car Loan Early

There are many ways you can approach paying off a car loan early. They include: 

• Make Bi-Weekly Payments – If your lender okays this method of paying off a car loan early, you’ll make 13 payments and year instead of 12, shortening the term of the loan. This is great for people who get paid every other week. 
• Round Up Your Payment Each Month – Each time you make a monthly payment, round up the amount to the nearest $50.
• Make One Extra Payment Each Year in One Lump Sum – If you find yourself with an influx of cash from a tax refund, inheritance, or work bonus, you can use it to double your payments during one month of the year.
• Resist the Temptation of Skipping a Payment – This may be tempting if you’re in the midst of a rough month financially, but it will only lengthen your loan term and tack on more interest.
• Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, making it easier to pay more than what’s required each month so you can pay off your loan early.

Learn More About Auto Loans with Thompson Cadillac

Now that you know about how to pay off a car loan early, let Thompson Cadillac help you learn more about auto loans, like how to remove a co-signer and more! Are your ready to purchase a vehicle and need financing? Apply for financing with Thompson Cadillac and let us get a great rate for you.