Can I Pay Off My Car Loan Early?

Richmond drivers who finance their new or used Chevy with an auto loan sometimes ask us at Rick Hendrick Chevrolet Buick GMC Richmond, “Can I pay off my car loan early?” Paying off a car loan early can be a good idea. Learn more about auto financing, the pros and cons of paying off a car loan early, and how to pay off a car loan early here from your friends at Rick Hendrick Chevrolet Buick GMC Richmond. Feel free to contact us if you have any questions.

Is it Good to Pay Off a Car Loan Early?

It takes some good financial planning and self-discipline to pay off a car loan early, but you’re usually rewarded with lower interest costs, decreased chances of being upside-down on your car loan, a lower debt-to-income ratio, and more peace of mind while driving around Henrico.

When Paying Off a Car Loan Early Makes Sense

It might be good to pay your car loan off early if any of these scenarios make sense for you:

• You have minimal other debts to pay and would like to get your car loan paid off so you can free up money for other expenses or savings.
• You have some extra funds saved up or available in your budget so that making larger monthly car payments won’t impact your emergency funds and other finances.
• You want to lower your monthly expenses to plan for a larger financial goal, like entering retirement or saving for a down payment on a house.
• You intend to improve your debt-to-income ratio.

When Paying Off a Car Loan Early May Not Be the Best Option

• You don’t have much money set aside for emergencies.
• If you have a remarkably good interest rate, it might be smarter to just continue making on-time payments according to your loan terms. The money you’d use to pay off your loan early could be better served invested in a retirement fund or for another financial goal, like a mortgage.
• If you’re trying to improve your credit history by paying on time, keep paying your payments as scheduled to build your credit history and your credit score.
• Check your current car loan to see if it includes prepayment penalties. If so, if you want to avoid those penalties, just keep to your regularly scheduled payment amount.

How to Pay Off a Car Loan Early

There are a few ways to pay off your car loan early. Take a look below to determine which route makes the most sense for your financial situation:

• Make Bi-Weekly Payments – Check with your current lender to see if it’s okay to use this technique. Divide your monthly car payment by two and make that payment amount every two weeks. By using this method, you will make 13 full payments per year rather than 12. 
• Round-Up Your Payment Each Month – Every time you make a monthly payment, round it up to the nearest $50.
• Make One Extra Payment Each Year in One Lump Sum – If you’d rather not pay more each month, consider making one large extra payment per year to achieve the same interest savings. You could use your tax refund or annual bonus.
• Resist the Temptation of Skipping a Payment – Sometimes lenders allow you to skip one or even two car loan payments per year, like during the holidays. This may be tempting if you’ve had unexpected expenses, but it will only lengthen your loan term and add on more interest.
• Refinance with a New Car Loan – If you’ve made a couple of years’ worth of on-time, full payments, you may be a good candidate for refinancing your car loan. Of course, you should only do so if you can get a lower interest rate. A lower interest rate will lower your monthly car payment, which makes it easier to pay more every month than what’s required.

Turn to Rick Hendrick Chevrolet Buick GMC Richmond for All Your Auto Financing Needs

Now that you no longer need to ask, “Is it good to pay off a car loan early?” if you’d like more information on paying off a car loan early, contact the finance team at Rick Hendrick Chevrolet Buick GMC Richmond. We’re conveniently located near Glen Allen and Goochland. You can even apply for financing online. So, let us know how we can help.