Can I Pay Off My Car Loan Early?
Is it good to pay off a car loan early? The answer depends on a number of factors. There are many advantages and disadvantages to paying off a car loan early, so it’s important to do your research. Let’s take a look at whether you should consider changing your financing strategy with Hendrick Chevrolet Cary, serving the greater Raleigh area.
Pros of Paying Off a Car Loan Early
The average length of a car loan around the Apex and Cary area is six years, and many drivers want to pay off that loan as soon as possible. So, is it good to pay off a car loan early? It can be.
- Interest: The shorter your loan term, the less you’ll spend on interest over time. This can add up to bigger savings than you might expect.
- Debt Load: If you’re planning on buying a house in Cary or another big financial investment, lowering your debt-to-income ratio by paying off your car loan early can be a huge help.
- Cash Flow: If you simply want extra cash to spend, paying off a car loan early can free up your funds for anything from retirement to other expenses.
Cons of Paying Off a Car Loan Early
There are also disadvantages of changing your financial plans, so knowing how to pay off a car loan early the right way is important. Be sure to weigh the pros and cons carefully, and feel free to reach out to our finance department for personalized recommendations.
- Monthly Costs: Shortening your loan term means increasing your monthly payments, so be sure that you have the funds to accommodate a higher monthly payment.
- Prepayment Penalties: Some loans include prepayment penalties if you pay off your loan early, so be sure to double-check your terms. If the penalty is too steep, it might not be financially worthwhile.
- Refinancing: Refinancing might be a better option if your credit has improved and you’re hoping to get a better interest rate. You might be able to get a better deal overall with a lower monthly payment and shorter loan term.
- Credit: Paying off your loan early certainly won’t hurt your credit, but continuing your car loan on the original payment plan may be more advantageous if you’re using the auto loan to rebuild your credit.
How to Pay Off a Car Loan Early
If you’ve determined that paying off a car loan early is what you want to do, what comes next? Here are some common strategies to get ahead on your car loan payments:
- Make Bi-Weekly Payments: Some lenders don’t allow this, so you will want to ask whether it’s allowed before you move forward. To make bi-weekly payments, simply divide your monthly payment by two and pay that amount every two weeks. When you follow this method without skipping any payments, you’ll have made 13 full payments by the end of the year instead of 12.
- Round-Up Your Payment Each Month: Round up to the nearest $50 for each payment you make.
- Make One Extra Payment Per Year in a Lump Sum: Instead of rounding up your payment each month as described above, you can make one large extra payment per year in one lump sum.
- Never Defer a Payment: Some lenders allow one or two loan payments to be deferred each year. If you’re in serious financial trouble, this can be a life-saver, but it should be reserved for true emergencies. Each time you defer a payment, you’re extending the time it will take to pay off your loan and you’ll end up paying more interest as the interest continues to accrue when you defer a payment.
- Consider Refinancing: After a year or two of timely car loan payments, your credit will likely improve. At that point, you could consider refinancing your loan to get a better interest rate and a lower monthly payment, meaning you’d finish paying off the car earlier than intended.
Find Out More with Hendrick Chevrolet Cary
If you want to know more about how to pay off a car loan early, feel free to contact us at Hendrick Chevrolet Cary. We can help you navigate the financing process, whether you want to apply for financing or refinance your current loan.
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