Can I Pay Off My Car Loan Early?

Lake Park and Palm Beach County drivers who opt for new or pre-owned vehicles with an auto loan will have set monthly payment amounts to ensure that vehicles are paid off in time. However, what if you’d like to exceed your monthly payment amounts? Is it good to pay off a car loan early? Yes, paying off your vehicle loan early is a fantastic and financially savvy option for local drivers! Our knowledgeable finance team will walk you through the following automotive loan topics: 

• When paying off a vehicle loan is or isn’t a good decision
• How to pay off a car loan early

When Is It Good to Pay Off a Car Loan Early?

Paying off a vehicle loan early requires sound financial planning and discipline, but you’ll be rewarded with decreased chances of becoming upside-down on your car loan, lower overall interest paid, and a decreased debt-to-income ratio! Not to mention, you’ll be that much closer to becoming financially stable! 

When Paying Off a Vehicle Loan Early Isn’t Ideal

• You’re using your timely monthly payments to enhance your credit score or build your credit history.
• You have exceptional interest rates, which makes it wiser to continue making on-time payments as currently agreed upon. The funds you would’ve used to pay off your vehicle loan early could be better used as an amount set aside for a financial goal or as a retirement fund. 
• You don’t have many additional emergency funds set aside.

Note that some vehicle loan agreements feature penalties for prepayment. If this is so, you would want to avoid those loan prepayment penalties by maintaining your regularly scheduled loan amount. 

When Paying Off a Vehicle Loan Early is Ideal

• You’re hoping to enhance your debt-to-income ratio.
• You’re trying to lower your monthly vehicle expenses to plan for a larger financial goal, such as growing your family and retirement.
• You have sufficient funds in your budget so that making larger monthly vehicle payments won’t affect your emergency fund and other savings.
• You have little or no additional debts and would like to get your vehicle loan paid off so you can free up your savings for other expenses.

How to Pay Off a Car Loan Early

Now that you know when it is and isn’t good to pay off your car loan early, it’s time to figure out how to actually pay off your vehicle loan ahead of schedule. Take a look at the instructions outlined below to pay off your loan earlier:

• Make Payments Biweekly: Check with your loan lender to make sure this technique is approved; divide your monthly payment in half, then make that payment biweekly. This should allow you to make 13 yearly payments rather than 12. 
• Round-Up Each Payment to Nearest $50: For each monthly payment, round up each payment amount to the nearest $50. 
• Pay a Lump Sum: Prefer not to round up each monthly payment using the method mentioned above? You can choose instead to make one extra-large payment yearly to get the same interest savings. 
• Opt-Out of a Payment, At Your Own Risk: Some lenders allow you to skip one or two vehicle loan payments yearly. This could be tempting if you’re in the middle of a rough financial period, but it will only tack on more loan interest and lengthen your loan term. 
• Refinance with a New Car, Truck, or SUV: Once you’ve made one or two on-time, in-full yearly payments, you may be eligible for refinancing. You’ll only want to refinance when it gains you a reduced interest rate. 

Find Out More About How to Pay Off Your Vehicle Loan Early with Earl Stewart Toyota!

So, can you pay off your car loan early? Yes, you can! But the process is easier when you’re working with the experts at Earl Stewart Toyota. Contact us if you have any questions, and meanwhile, check out our new vehicle specials and current Toyota incentives to get a great deal on your next car, truck, or SUV.