Can I Pay Off My Car Loan Early?

Signing Finance Documents for Car

When you’re planning for your future, you may be considering paying off your car loan early. Not only can you get ahead on a loan, our team at Joe Morgan Honda has the tips for how to pay off a car loan early. While your Cincinnati new or used vehicle has a set amount at the beginning of the loan, you can lower or adjust your payments by contacting our financing team. Follow along with our guide to decide if it is good to pay off your car loan early. 

Deciding if it is Good to Pay Off a Car Loan Early

Before considering how to pay off a car loan early, Middletown drivers need to create a personal budget and financial plan. It may be best to contact a financial advisor to help plan how to go about paying off the debt because when drivers have an action plan, these outcomes can be decreased:

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

When Paying Off a Car Loan Early Is the Right Option

Drivers choose to finance a car when they can’t pay the entire amount upfront. However, situations change and it may be the right time to get ahead on the loan. Consider paying off the car loan early is these situations apply:

  • There is little to no other debt and any free cash can go towards the loan.
  • Drivers have additional savings they want to apply to the loan. 
  • If drivers are looking to plan ahead for retirement or growing a family.
  • Drivers want to improve their debt-to-income ratio.

Getting ahead on a loan is meant to help drivers, so it’s important to ensure that paying a loan early won’t negatively affect daily lifestyle or dip into the emergency funds. It’s only an ideal option when there is extra money to spare.

When Paying Off a Car Loan Early Is Not Right Option

While it is a good idea to assess finances and consider getting ahead on a loan, paying off a car loan early isn’t always the best option. It’s best to hold off if any of these situations 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.
  • Make sure the terms of the loan allow early payment, some have a prepayment penalty attached and will be detrimental to the loanee.

Choosing How to Pay Off a Car Loan Early

Once Lebanon drivers decided if it is a good idea to pay off their car loan early, there are a couple ways to go about it:

  • Bi-Weekly Payments: Verify the loan terms with the lender first as not all loans allow bi-weekly payments. If it’s possible, loanees can divide the regular payment each month into two, creating a payment every two weeks. At the end of the year, there will have been thirteen payments made instead of the usual twelve. 
  • Rounding Up Monthly Payments: Simply, rounding up the monthly payments to the nearest fifty dollars can add up and put drivers ahead on their loan. 
  • Make an Extra Lump Sum Payment: Making a one-time extra payment towards the car loan each year allows drivers to get ahead on the loan and helps achieve the same interest savings found when rounding up monthly payments. 
  • Make Timely Payments and Resist Skipping: While many lenders allow a scheduled missed payment or two, it’s best to prevent skipping a loan payment. It’s usually meant for financial emergencies only, and when used, it can lengthen the loan term and add to the interest.
  • New Car Loan Refinancing: When there is a history of timely and full payments, drivers typically have the opportunity to refinance their loan after two years. With refinancing, drivers can get a lower interest rate than they currently have, and that decreased rate will lead to a lower monthly payment. Then, use that additional money saved to continue paying off the car loan early!

Explore Car Financing Options with Joe Morgan Honda!

Is paying off your car loan early a good option for you? Contact our team if you still have questions about your current car loan, and if you still have financing questions, take a look at our other car buying tips.

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