Is Paying Off a Car Loan Early a Good Idea?
Have you ever wondered about paying off a car loan early or how to pay off a car loan early? Harvey drivers who finance their new Chevy have a set monthly payment amount that must be paid on time every month. But is it good to pay off a car loan early? It is usually a good idea if you can afford it. Here the Leson Chevrolet Company, Inc. finance team covers when paying off a car loan early is or isn’t wise, and how to pay off a car loan early. If you have questions, contact us. We’re here for you!
Is it Good to Pay Off a Car Loan Early?
It takes some good financial planning and diligence to pay off a car loan early. Still, you’re rewarded with lower interest paid, a lower debt-to-income ratio, less chance of being upside down on your loan, and you’ll be closer to financial freedom.
When Paying Off a Car Loan Early is Wise
- You want to lower your debt-to-income ratio
- If you desire little debt and would like to get your auto loan paid off to free up money for other things
- You have the extra funds saved, or enough wiggle room in your budget, that making larger monthly payments won’t negatively impact your emergency funds and other financial responsibilities
- You are attempting to lower your monthly expenses to make room for a larger financial goal, such as entering retirement or growing your Gretna family
When Paying Off a Car Loan Early Isn’t the Best Choice
- Your budget is tight and you don’t have any extra funds set aside for emergencies
- If you have an outstanding interest rate, it might be smarter to just continue making your required payments on-time. The money you’d use for paying your loan off early could be better served for another purpose like a retirement fund or a mortgage
- You’re using your on-time, set monthly payment schedule to build a favorable credit history and improve your credit score
- Some car loan agreements include prepayment penalties. Check your loan paperwork to see if you would have to pay a prepayment penalty. If so, you’ll probably want to avoid those penalties and adhere to your regularly scheduled payment amount.
How to Pay Off a Car Loan Early
If you want to know how to pay off a car early, take a look to determine which option below makes the most sense for you.
- Make Bi-Weekly Payments – Check with your Marrero lender to see if you can make bi-weekly payments instead of monthly payments. If so, divide your monthly car payment by two. Then, make that payment amount every two weeks. Using this bi-weekly method, you will make 13 total payments per year instead of 12.
- Round-Up Your Payment Each Month – Each time you make your monthly payment, round it up to the nearest $50 or $100.
- Make One Extra Payment Each Year in One Lump Sum – If you don’t want to round up your payment each month, instead make one large extra payment per year.
- Resist the Temptation of Skipping a Payment – Some Belle Chasse lenders allow you to skip one or more car loan payments per year, like during the holidays. It may be tempting, but it will only lengthen your loan term and cost you more interest.
- Refinance with a New Auto Loan – Once you’ve made one or two years of on-time, full payments, you will likely qualify for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate that you qualify for will lower your monthly payment and make it easier to pay more than what’s required each month.
Learn More About Auto Loans With Leson Chevrolet Company, Inc.!
Now that you know more about paying off a car loan early, we hope you will consider financing your next new or pre-owned vehicle with Leson Chevrolet Company, Inc.. Contact the finance team at Leson Chevrolet Company, Inc. if we can be of service. We’re always happy to help!
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