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Can I Pay Off My Car Loan Early?

Tiny car with coins and finance paperwork

 

When you choose to finance your or used Honda with an auto loan, you have a set monthly payment that you must adhere to to pay off the loan in time. If you’re someone who likes to be proactive, then you’re likely wondering, “Can I pay off my car loan early?” Yes, paying off a car loan early is a viable option for many Warren vehicle owners. Read this guide by the finance team at Apostolakis Honda as we cover how to know whether paying off your car loan early is a good idea, as well as what steps to take to make this a reality. 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan requires having a good financial plan and a lot of diligence. However, this hard work will pay off in the long run as you’ll have lower interest paid overall, a lower debt-to-income ratio, decreased chances of becoming upside down on your car loan, and you’ll be one step closer to financial freedom.

When Paying Off a Car Loan Early is a Good Idea

  • You have little to no other debts to take care of, thus you want to pay off your car loan to free up money for other expenses. 
  • You have enough money set aside to make larger monthly car payments and not have it negatively affect your financial situation. 
  • You’d like to lower your monthly expenses so you can plan for a larger financial goal such as retirement or growing your family in Boardman. 
  • You’re looking to improve your debt-to-income ratio

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

  • You don’t have a lot of money set aside for emergencies 
  • If you have a really good interest rate, it may be best to continue making on-time payments, and instead use the money that you would pay off the loan for something else such as saving for a mortgage. 
  • You’re making on-time, monthly payments to build your credit history and raise your credit score.
  • Some car loan agreements include prepayment penalties. If this is the case, you’ll want to avoid those penalties by simply continuing to pay your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

Here are a few methods you can follow to pay off your car loan early:

  • Make Bi-Weekly Payments – Consult with your lender first to ensure it’s ok to use this method. You would divide your monthly car payment in half, making that new payment amount every two weeks. By 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 a monthly payment, round up the amount to the nearest $50.
  • Make One Large, Extra Payment Each Year – If you’d rather not use the method mentioned above, you can make one large, extra payment per year to garner the same interest savings. 
  • Try Not to Skip a Payment – While some lenders may permit you to skip one or even two car payments per year, this will only extend the length of your loan and add on more interest. 
  • Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you might be in a good position to refinance your car loan. Of course, you should only refinance if it will result in you securing a lower interest rate. The lower interest rate will lower your monthly payment, making it much easier for you to pay more than what’s required each month so you can pay off the loan early. 

Get More Car Buying Tips from Apostolakis Honda

Is it good to pay off a car loan early? For many drivers in Youngstown, the answer is yes! If you’d like more information on how paying off your car loan early can benefit you, contact us today! We’re always happy to provide helpful car buying tips such as whether you should lease or buy.

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