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How to Pay Off a Car Loan Early

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When you finance your new or used car in Houston, PA, you agree to a set monthly payment over a certain period of time. While falling behind in payments isn’t recommended, is it good to pay off a car loan early? Paying off a car loan early can be a great way to speed up your payment process, but there are pros and cons to everything. Find out why you might want to accelerate your loan and how to pay off a car loan early with Washington Hyundai, and visit our finance department for personalized advice.

 

 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early can take you one step closer toward eliminating your car payment completely, but it can also put serious stress on your finances if you are unprepared. Take a look at the pros and cons:

Advantages of Paying Off a Car Loan Early

  • If you have little or no other debts, speeding up your loan payments will free up funds for other expenses.
  • If you have enough money saved up in an emergency fund, you have ample wiggle room to afford the larger monthly payments.
  • If you want to move onto another financial goal, like retirement, accelerating your loan payment can help you get there faster.
  • If you want to improve your debt-to-income ratio, paying off a car loan early is a great way to do it.

Disadvantages of Paying Off a Car Loan Early

  • If you don’t have an emergency fund in place, larger car payments can put a lot of stress on your financial situation.
  • If you have an exceptionally good interest rate, you might benefit more from setting aside extra money in a savings or retirement account.
  • If you are building your credit in McMurray, PA, it makes sense to continue paying off your loan as usual.
  • Some car loan agreements include prepayment penalties. If this is the case, you might not benefit from ending your loan early.

How to Pay Off a Car Loan Early

Let’s say this sounds like the right plan for you. There are several methods of how to pay of a car loan early, so see which one sounds best for your budget.

  • Make Bi-Weekly Payments — Split 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 — Each time you make a monthly payment, simply round up the amount to the nearest $50 to get ahead.
  • Make One Extra Payment Each Year in One Lump Sum — You can instead choose to make one large extra payment per year, which will achieve the same interest savings as the previous method.
  • Resist the Temptation of Skipping a Payment — While many lenders allow you to skip one or two car loan payments per year, it will only lengthen your loan term and tack on more interest.
  • Refinance with a New Car Loan — After one or two years of on-time, in-full payments, you can consider refinancing. Refinancing with a lower interest rate will lower your monthly payment, which makes it easier to pay more than what’s required each month.

Explore Your Financial Options at Washington Hyundai

So, is it good to pay off your car loan early? Find out whether it’s right for you at Washington Hyundai. Our team is happy to help our customers in the Eighty Four, PA area find solutions that work for their budget, so feel free to contact us in Washington.

 

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