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Can I Pay Off My Car Loan Early?

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Many Brockton-area drivers often ask about paying off their car loan early and whether it’s a good idea. It’s possible to pay off your loan balance early, and our team of financial experts can help! Even though your new or used Honda vehicle has a set auto loan payment through auto financing, you can adjust those payments to pay the balance off early. Learn how to pay off a car loan early in this handy guide from Silko Honda, your trusted Raynham Honda dealership.

Is it Good to Pay Off a Car Loan Early?

It can be good to pay off your car loan early, but you need a sound financial plan to achieve this goal. Because of this, it’s recommended that you meet with your financial advisor to discuss the possibility of paying off your car loan early. Doing this decreases a few outcomes: 

  • The overall interest paid
  • Becoming upside down on your loan
  • Lower debt-to-income ratio

When Will Paying Off Your Car Loan Early Makes Sense?

Most car shoppers will finance their vehicle since they can’t pay the entire amount upfront. Paying off your car loan early is an excellent option if the following happened:

  • Little to no other debt, which frees up cash to pay off your loan.
  • You have savings you want to apply to your car loan.
  • You want to lower out-going expenses to retire or grow your family.
  • Looking to improve your debt-to-income ratio.

Paying off your loan is a good thing, but you don’t want it to negatively affect your lifestyle or emergency funds. 

When Paying Off a Car Loan Early Isn’t the Right Option.

Below are several reasons why paying off your loan early is not the right option:

  • You have no extra money for emergencies.
  • You do not have a reasonable interest rate.
  • Likewise, you are looking to build your credit or improve your credit score.
  • Some car loan agreements have prepayment penalties.

How to Pay Off a Car Loan Early

If, after viewing the recommendations above, you’re still interested in paying off your car loan early, check out your options below.

  • Make Bi-Weekly Payments: Make sure your lender is okay with this since some lenders don’t allow bi-weekly payments. Divide your monthly payments into two and make that payment every two weeks. This means that you will end up making thirteen car payments a year instead of twelve. 
  • Round-Up Your Payment Each Month: Round your monthly payments to the nearest fifty dollars each month.
  • Make One Lump Sum Extra Payment: Paying a lump sum – a one-time extra payment that’s a large amount towards your auto loan every year. This is the same as rounding up your monthly payments each month.
  • Resist the Temptation of Skipping a Payment: Most lenders let you skip a payment or two upon consent annually. This should only be done in a financial emergency. Skipping payments only lengthens your loan and adds interest.
  • Refinance with a New Car Loan: If you keep making your monthly payments on time and have a great payment history after two years, you can be eligible to refinance your auto loan to obtain a lower interest rate. This will lower your monthly payments.

Don’t hesitate to speak with a member of our finance team to learn more about how to pay off a car loan early.

Get Financing Assistance Near Taunton!

After learning about paying off your car loan early, feel free to get in touch with our sales team if you have additional questions. At Silko Honda, we’re proud to serve the Fall River and work to make their car-buying process stress- and hassle-free. Whether you want to learn how to pay off a car loan early or how to obtain financing with bad credit, we can help! Give us a call today!

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