Is it Good to Pay Off a Car Loan Early?

Tiny car with coins and finance paperwork
 

Paying off a car loan early can have its benefits for Cape Coral drivers, but is it good to pay off a car loan early in all cases? That depends greatly on your needs and budget, and Val Ward Cadillac is here to help you make the best decision for you. Learn why you might benefit and how to pay off a car loan early with help from our finance center, and stop by Fort Myers to chat in person!

Why Consider Paying Off a Car Loan Early?

Paying off a car loan early can be a big benefit to the right driver, but it’s important to think about your goals for your accelerated schedule. Here are some scenarios to think about:

Advantages

  • You don’t have many other debts, so you’d like to pay your car loan early to free up monthly funds.
  • You have plenty of extra funds saved up, so paying off your loan early wouldn’t compromise your emergency savings.
  • You want to lower your monthly expenses in the future for a big financial goal, like entering retirement or expanding your family.
  • You want to improve your debt-to-income ratio.

Disadvantages

  • You don’t have an emergency fund, and your budget will get tight if you pay off your loan early.
  • You already have a great interest rate. Instead of overpaying on your monthly loan, better to continue making regular payments and use the extra funds toward savings or other financial goals.
  • You are using your loan to build your credit history.
  • Your loan agreement includes prepayment penalties.

How to Pay Off a Car Loan Early

So, is it good to pay off a car loan early? Let’s say you decide that it’s right for you. Here are few different ways you can pay off your loan earlier than scheduled.

  • Make Bi-Weekly Payments – If your lender allows it, you can make bi-weekly payments. Divide your monthly car payment by two, then make that payment amount every two weeks. This allows you to make 13 full payments per year rather than 12. 
  • Round Up Your Payment Each Month – A simple way to get ahead of your loan schedule is to round up every bill amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – You can also choose to make one large extra payment per year, which will achieve the same interest savings. 
  • Resist the Temptation of Skipping a Payment – Though many lenders allow you to defer a car payment or two, stay on track when possible. This prevents you from lengthening your contract and paying additional interest.
  • Refinance with a New Car Loan – After one or two years’ worth of on-time, in-full payments, you can consider refinancing to secure a lower interest rate. This will help you get a better deal overall, and help you pay off your monthly loans in Naples even faster.

Explore Your Options with Val Ward Cadillac

Want to explore your financial options? The team at Val Ward Cadillac can give you personalized advice, based on your unique circumstances. Feel free to contact us at Val Ward Cadillac for more information about how to pay off a car loan early, or stop by Val Ward Cadillac for additional recommendations. We’re only a short drive from Bonita Springs, so reach out at any time.

 

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