Paying Off a Car Loan Early

Navy Chevy Equinox

It is entirely possible to pay off a car loan early, and it may even be a great idea. We here at the Sunrise Chevrolet finance center can show you how to pay off a car loan early near Chicago, and let you know whether is it good to pay off a car loan early for your particular situation. Even though your new or used vehicle has a set auto loan when you finance, it is possible to adjust your payments by contacting us. Keep reading to learn more!

Is it Good to Pay Off a Car Loan Early?

It can be! If you want to pay your car loan off early, you’ll need to make a sound financial plan. That’s why it’s often best to meet with a financial advisor near Carol Stream or elsewhere to discuss how you plan to pay off your debt. By paying off your debt early, you gain several benefits like:

  • You pay less overall interest
  • You avoid becoming upside down on your loan (owing more than your vehicle is actually worth)
  • You get a lower debt-to-income ratio, which means more money coming home

However, there are still some remaining factors to consider for your particular situation:

When Does Paying Off a Car Loan Early Makes Sense

When you first financed your car, you did so because you couldn’t pay for it entirely upfront. We only say this because you should consider your present financial situation carefully when you decide whether to pay off the rest of the loan, especially if what’s remaining on your loan is a very large amount. If you meet these conditions or have these goals, paying it off early could be a great idea:

  • You have little to no other debt, which allows you to free up cash to pay off your loan.
  • You have savings that you want to spend on your car loan.
  • You want to lower out-going expenses to retire or grow your family.
  • You want to improve your debt-to-income ratio.

Be sure that paying off your car loan early won’t negatively affect your lifestyle or emergency funds. As in, don’t pay more money than you can actually afford. An ideal situation for paying off your car loan is coming into extra money.

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

It’s not always the best option to pay off your car loan early, even when you have the best of intentions. Maybe rethink your decision if any of the following is true for you:

  • 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 (making regular payments improves your credit, if you were to stop, that improvement would also stop.)
  • Some car loan agreements can have prepayment penalties. That means that paying off your car loan early could actually cost extra.

How to Pay Off a Car Loan Early

Paying off a car loan early is fairly straightforward. Once you’ve reviewed our recommendations and decided you want to pay that car loan off, just do a few of the following options:

  • 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 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.

Feel free to combine some of these options in order to pay the loan off even sooner. When you have your meeting with your financial advisor, choose which one would work best for you and your budget.

Learn More about Car Financing near Addison From the Sunrise Chevrolet Finance Center!

We hope that you now know how to pay off a car loan early and whether you should do so. If you still have questions, contact us, and we’ll be happy to answer them! We’re happy to have helped you pay off your car loan early and pushed you closer to the road to financial freedom.

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