Can I Pay Off My Car Loan Early?

When you look at your monthly car loan payment, it’s unlikely you’re thrilled to be paying it. Plenty of Providence and Coventry drivers ask us about paying off car loans early. Is it a good idea to pay off a car loan early? It certainly can be in a lot of cases! The finance center at INFINITI of Warwick can show you how to pay off a car loan early when it best benefits you. 

Is it Good to Pay Off a Car Loan Early?

With some smart financial planning and some diligence, it’s definitely good to pay off a car loan early. You can save a lot of money in interest charges. Plus, it’s one less bill to worry about each month when you’re doing your finances in Cranston. Here are the circumstances that make paying off a car loan early a good idea: 

Circumstances When Paying Off a Car Loan Early is a Good Idea

• You’re not carrying a lot of debt with higher interest than your car loan. 
• You have enough extra funds or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances.
• You want to lower your monthly expenses 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:

• Your emergency savings account is low. 
• If you have an exceptionally good interest rate. 
• You’re using your on-time, set monthly payments to build your credit history or raise your credit score.
• Your loan agreement includes penalties for early payoff. In this case, you’ll want to avoid those penalties by adhering to your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

There are several ways to pay off a car loan early beyond making one lump sum payment for the full amount. These techniques will all help you pay your debt faster and with less interest: 

• Make Bi-Weekly Payments – Check with your lender first to ensure it’s okay to use this technique. Instead of making one monthly payment, pay half of the monthly payment amount every two weeks. After a year you’ll have made 13 full payments per year rather than 12. 
• 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 have extra money from a tax return or salary bonus, you can use it to make one large extra payment. 
• 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. Only do this if you’re able to get 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.

Even though some lenders allow borrowers to skip one or two payments without low penalties, resist this urge. It’ll just mean you will have to keep paying off your car loan for a longer period of time. 

Manage Your Automotive Finances with INFINITI of Warwick

Now that you know how to pay off a car loan early, turn to INFINITI of Warwick with all of your car financing questions. We have information about in-house financing, how to get a car loan with less-than-perfect credit, and more! Contact us with your financing questions today.