Can I Pay Off My Car Loan Early?

Are you trying to finance a used vehicle in the St. Louis area with an auto loan? Then you’ll need to set a monthly payment amount, and stick to it, if you want to pay off your car loan on time. However, there’s always the possibility that you come into a windfall of money or need to pay off a bunch of expenses in a short period of time.

 

In these circumstances, is it good to pay off a car loan early? Is paying off a car loan early even an option? Yes! Paying off a car loan early is a valid option for plenty of St. Peters drivers. Find out how to pay off a car loan early with the Financiers at Travers Automotive Group below!

Is It Good to Pay Off a Car Loan Early?

You can pay off a car loan ahead of your predetermined date, however, the process takes steady discipline and savvy financial planning. Fortunately, we here at Travers Automotive Group believe that the lower interest rates, decreased chances of becoming upside down on your loan, and lower debt-to-income ratio is well worth the effort. Take a close look at when is and isn’t a good time to pay off your car loans early:

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

  • Some car loan agreements include prepayment penalties. If this is the case, you would of course want to avoid those penalties by adhering to your regularly scheduled payment amount.
  • You’re using your on-time, set monthly payments to build your credit history or raise your credit score
  • If you have an excellent interest rate, it may be smarter to just continue making on-time payments in the agreed upon monthly amount. The money you’d use to pay your loan off early could be better served if you set it aside in a retirement fund or for a future financial goal, such as a mortgage.
  • You don’t have many extra funds set aside for emergencies

When Paying Off a Car Loan Early Makes Sense

  • You’re looking to improve your debt-to-income ratio
  • You are attempting to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family
  • You have enough extra funds saved up or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances
  • You have little or no other debts to take care of and would like to get your car loan paid off, so you can free up money for other expenses

How to Pay Off a Car Loan Early

If paying off your car loans early seems like an attractive option to you, you’re in luck! You have multiple routes at your disposal. Check out your available options and see which one makes the most sense for you and your family:

  • Make Bi-Weekly Payments – Check with your lender first to ensure it’s okay to use this technique; divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you will effectively be making 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’d rather not round up for each monthly payment using the above method, you can instead choose to make one large extra payment per year to achieve the same interest savings.
  • Resist the Temptation of Skipping a Payment – Believe it or not, some lenders allow you to skip one or even two car loan payments per year. This may be tempting if you’re in the midst of a rough month financially, but it will only lengthen your loan term and tack on more interest.
  • 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. Of course, you should only refinance if it’s securing you 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.

Get Further Financing Assistance at Travers Automotive Group

Are you in need of further car financing advice? We here at Travers Automotive Group are proud to serve any and all drivers in the greater Florissant areas! You’re more than welcome to reach out to us online, give us a ring, or visit our dealership in person!

 

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