When you choose to finance your new or pre-owned car with an auto loan, you have a set monthly payment that you must adhere to in order to pay the vehicle off in time. However, if you’re looking to free up some extra money in your monthly budget, you may be wondering, “Can I pay off my car loan early?” Yes, paying off a car loan is a viable option for many Arlington drivers. Read this guide by the Wolfchase Honda finance center team to learn when paying off a car loan early is or isn’t a good idea, as well as how to pay off a car loan early.

Is it Good to Pay Off a Car Loan Early?

While paying off your car loan early requires good financial planning and a lot of diligence, you’ll be afforded a number of benefits like lower interest paid overall, decreased chances of becoming upside down on your loan, a lower debt-to-income ratio, and you’ll be that much closer to financial freedom.

When Paying Off a Car Loan Early is a Good Idea

• You don’t have many other debts to pay, thus paying off your car loan early will free up money for other expenses
• You have extra funds set aside, or enough wiggle room in your budget, that you can make larger monthly car payments and it won’t affect your emergency funds or other finances.
• You’re aiming to lower your monthly expenses to plan for a larger financial goal like growing your Memphis family or entering retirement.
• You’d like to improve your debt-to-income ratio

When Paying Off a Car Loan Early Isn’t a Good Idea

• You don’t have extra money set aside for emergencies
• Bartlett drivers who have a good interest rate may just want to continue making on-time payments in the agreed upon monthly amount.
• You’re using your on-time monthly payments to build your credit history or raise your credit score.
• There are some lenders that have prepayment penalties. If this is the case, you’ll want to avoid these penalties by paying your regularly scheduled payment amount.

How to Pay Off a Car Loan Early

There are a few methods you can use to pay off your car loan early. Read on to decide which route makes the most sense for your financial circumstances:

• Make Bi-Weekly Payments You should consult with your lender first to make sure that this method is allowed. Divide your monthly payment into two, then make the payment every two weeks. Using this technique, you’ll be making 13 full payments per year rather than 12.
• Round Up Your Payment Each Month Each time you make your monthly payment, round up the nearest $50.
• Make One Large, Extra Payment Each Year Don’t want to round up each payment every month? Instead, you can choose to make one large extra payment per year to garner the same interest savings.
• Don’t Skip Payments Some lenders allow borrowers to skip one or even two car payments per year. Try to avoid skipping payments as it will only extend the length of your loan term and add on more interest.
• Refinance with a New Car Loan If you’ve been making one or two years’ worth of on-time, in-full payments, you may be a good candidate for refinancing. Although, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, thus making it easier to pay more than the required amount each month.

Get More Finance Guidance From Wolfchase Honda!

So, is it good to pay off a car loan early? For many Bartlett drivers, the answer is yes! If you’d like more information on how paying off a car loan early is beneficial, contact Wolfchase Honda today. We’re always available to provide you with expert car buying tips you can trust!