Can I Pay Off My Car Loan Early?

Most drivers around Minneapolis can’t wait to get done with their car loan payments, and some may even want to accelerate the repayment process. So, is it good to pay off a car loan early? The answer depends on your particular financial situation. Some might find that paying off a loan early is a great way to free up funding, while others might feel overwhelmed by the additional payments. 

In this guide, Jaguar Richfield Certified Pre-Owned & Service walks you through the pros and cons of both options as well as tips on how to pay off a car loan early.

Is It Good to Pay Off a Car Loan Early?

The first step is to ask yourself, “Is it good to pay off a car loan early?”, is to think about why you’d like to pay off your loan faster and what benefits you expect. Here are some reasons why you should or shouldn’t consider paying off your loan faster than scheduled:

When Paying Off a Car Loan Early Makes Sense

• Few Debts: If you have no or few debts, paying off your loan early can free up funding for other goals.
• Savings: Making extra payments will change your monthly budget, so it’s far easier to do with a good safety net of savings built up. 
• Future Goals: Let’s say you’re considering retirement or growing your family. Paying off your car loan early will help to lower your monthly expenses for an easier transition.
• Debt-to-Income Ratio: If you want to improve your debt-to-income ratio, clearing out your monthly car payments is a great way to do it.

When Paying Off a Car Loan Early Isn’t the Best Option

• Emergency Funds: If you don’t have an emergency fund built up, then you probably don’t have a lot of wiggle room in your budget. Adding extra car payments might cause more stress than it’s worth.
• Interest Rate: Another reason to stay on schedule is if your interest rate is already very good. If that’s the case, you might benefit more from starting a separate savings account or retirement account instead of paying off your low-interest loan quickly.
• Credit Building: What if you’re using your car loan to help boost your credit score? If so, we recommend sticking with payments as scheduled, so you have more time to create a positive credit history.
• Prepayment Penalties: Be sure to check the fine print on your contract. Some lenders include prepayment penalties if you pay off your loan faster than written. If so, be sure to crunch the number and see if it’s still financially worthwhile to accelerate your payment plan.

How to Pay Off a Car Loan Early in St. Paul

Let’s say you’ve decided to make the change! There are many strategies for how to pay off a car loan early, so take a look and see which one works the best for your wants and needs.

• Make Bi-Weekly Payments: Split your monthly car payments in half, and pay this amount every two weeks. This allows you to pay 13 times per year instead of just 12, but be sure that your lender is okay with this first.
• Round Up Your Payment Each Month: To make the math easy, you can simply round up each car payment to the nearest $50 or $100 or any other number that works with your finances.
• Make One Extra Payment Each Year in One Lump Sum: Some drivers choose to make one large extra payment per year to achieve the same interest savings. This is a good choice if you’re likely to receive a bonus or any other boost to your finances.
• Resist the Temptation of Skipping a Payment: Many lenders allow you to skip one or two payments without a penalty, but try to avoid this if you want to stay on track!
• Refinance with a New Car Loan: After one or two years of prompt payments, your credit score has probably improved. That means that you might qualify for a better interest rate if you refinance, which can help you speed up your repayment process. 

Compared to other dealerships around Edina, we make financing and car-shopping simple. For more car-buying tips and advice, trust the professionals at Jaguar Richfield Certified Pre-Owned & Service!

Learn More With Jaguar Richfield Certified Pre-Owned & Service!

Want to know the best option for your financial needs? Talk with our experts about how to pay off a car loan early, and we’ll help you create a plan to move forward with confidence. Contact us at Jaguar Richfield Certified Pre-Owned & Service to get started or stop by our finance center in Richfield!