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Can I Pay Off My Car Loan Early?

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When you begin financing a new or used vehicle, you must pay a set amount each month that accumulates interest over time until the amount you owe on your car plus interest is paid off. But what if you want to minimize the amount of interest you owe by paying your car loan off early? You can pay off your car loan early, and in this guide, we will answer, “does paying off a car loan early avoid interest?” and what happens when you pay off a car loan early. 

 

Does Paying Off a Car Loan Early Avoid Interest? 

If you have a good sense of your financial situation and plan accordingly, then you may have the option of paying off your car loan early. Paying off your car loan early will lessen the amount you’ll spend on interest and give you the financial freedom we all want. Find out below if paying off your car loan early is a good option for you. 

When Paying Off Car Early is a Good Idea

  • If you have no other debts to take care of and you wish to free up capital for other expenses, then paying off your car loan early is a good option. 
  • You have the cash to pay off your car loan in larger monthly chunks without tapping into emergency funds or other necessary expenses. 
  • You’re trying to lower your monthly expenses for a larger purchase or investment.
  • Improve your debt-to-income ratio.

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

  • You don’t have extra funds set aside for other expenses. 
  • If you have a good interest rate, then it may be better to pay the agreed-upon amount each month and use the extra funds for something else. 
  • You’re using your monthly payments to raise your credit score. 
  • Some car loan agreements include early settlement penalties. If early car loan repayment penalties are in your contract, then it’s better to adhere to the payment schedule agreed upon in your contract. 

How to Pay Off a Car Loan Early

If you’ve decided that you want to pay off your car loan early, then use our tips below: 

  • Make Bi-Weekly Payments – First, check with your lending officer to ensure they allow you to use this technique. If they do, divide your monthly car payments in half then pay it every two weeks. This way, you’re completing thirteen car payments each year rather than twelve. 
  • Round-Up Your Payment Each Month – Round up the amount you pay each month to the nearest $50. 
  • Make One Extra Payment Each Year in One Lump Sum – Make one large extra payment at the end of the year to lessen the future interest. 
  • Resist the Temptation of Skipping a Payment – Resist the temptation to take advantage of loan repayment breaks that some lenders offer. Skipping a payment will lengthen your loan repayment period and increase the amount you must pay in interest.
  • Refinance with a New Car Loan – When you’ve made one to two years of on-time, and in full car payments, then you can refinance your car for a lower interest rate. Refinancing for a lower interest rate will lower your monthly payments and allow you to pay off your car loan early. 

Learn More About Car Loan Options at Victory Mitsubishi

If you want to pay off your car loan early but you’re still not sure if it’s financially viable for you, then contact us at Victory Mitsubishi, and a member of our finance team will be happy to discuss your options with you.

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