Can I Pay Off My Car Loan Early?

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Interested in financing a new or pre-owned Cadillac, Buick, Chevrolet, Chrysler, Ford, GMC, Dodge, Jeep, Ram car in Stephenville? You can finance your new-to-you vehicle with an auto loan. However, you’ll have to set a monthly payment amount and pay it off on time. 

 

 

But what if you’d prefer the option of paying off car loan amounts earlier? Is it a good idea to pay off a car loan early? Yes, paying off car loans early is a viable and smart choice for many Brownwood area drivers. Find out how to pay off a car loan early with the experts at Bayer Auto Group below!

Is It Good to Pay Off a Car Loan Early?

You’ll need to properly manage your finances to pay off car loans early. However, the benefits are too good to be ignored: lower interest payments overall, decreased chances of becoming upside down on your loan, and a lower debt-to-income ratio are all great reasons to pay off your car loan ahead of time. 

When It Is Good to Pay Off a Car Loan Early

  • 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.
  • 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 are attempting to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family.
  • You’re looking to improve your debt-to-income ratio.

When It Isn’t Good to Pay Off a Car Loan Early

  • You don’t have many extra funds set aside for emergencies.
  • 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’re using your on-time, set monthly payments to build your credit history or raise your credit score.
  • 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. 

How to Pay Off a Car Loan Early

You have a few options for paying off your car loan early. We’ve broken down your available methods of financing the rest of your auto loans early for your convenience: 

  • 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.
  • 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.
  • 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. 
  • Round Up Your Payment Each Month: Each time you make a monthly payment, round up the amount to the nearest $50.
  • 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. 

Pay Off Your Auto Loans Early at Bayer Auto Group

Interested in paying off your car loans early? Then, you’ll want to give us a call at (325) 330-8152 for further assistance on how to handle your remaining auto loan debt! We’re more than happy to share what we know with any and all prospective customers in the greater Abilene area!

 

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