Is it Good to Pay Off a Car Loan Early?

Those Valdosta drivers who finance a new or pre-pre-owned vehicle with an auto loan have to make a monthly payment to pay it off according to the terms of the agreement. But sometimes, the finance team at Valdosta Nissan gets asked about paying off a car loan early. Is it good to pay off a car loan early? Yes, it is usually good to pay off a car loan early. Learn when and how to pay off a car loan early with your friends at Valdosta Nissan, and please don’t hesitate to contact us with any questions. 

When to Pay Off a Car Loan Early

It takes wise financial planning and lots of diligence to pay off your car loan early, but you’re rewarded with less total interest paid, and you decrease your chances of getting upside down on your car loan. You will also lower your debt-to-income ratio and be a step closer to financial freedom!

When Paying Off a Car Loan Early Makes Sense

So, when is paying off a car loan early a good idea?

• You have little or no other debts that need your attention
• You want to get your car loan paid off so you can free up funds for something else
• You have enough money saved or enough flexibility in your Moultrie budget that making larger monthly payments won’t negatively impact your emergency funds or other finances
• You want to lower your monthly expenses to make room for a more significant financial goal, like entering retirement or having children
• You’re looking to improve your credit score with a better debt-to-income ratio

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

There are some situations when Thomasville drivers shouldn’t pay off a car loan early.

• You don’t have much money saved for emergencies. Financial planners suggest having at least six months of expenses in your savings account.
• If you have an outstandingly low interest rate, it is probably wise to just continue making on-time payments in the set monthly amount. The reason is that the money you’d use to pay off your loan early could be better used for retirement funds or another financial goal, such as a mortgage.
• You’re using your on-time, set monthly car payments to build your credit history and improve your credit score
• Some auto loans include prepayment penalties. If this is the case with your loan, avoid those penalties by sticking to your regularly scheduled payment amount.

How to Pay Off a Car Loan Early

There are a few different ways to pay off your car loan early. 

• Make Bi-Weekly Payments – First, ask your lender if it’s okay to use this technique. Divide your monthly auto payment by two. Then, make that payment amount every other week on the same day of the week. Using this method, you will make 13 payments per year instead of only 12. 
• Round-Up Your Payment Each Month – Every time you make a monthly payment, round it up to the nearest $50 or $100.
• Make One Extra Payment Evey Year in One Lump Sum – If you don’t want to round up each monthly, you can achieve the same thing by making one large extra payment per year. Some people in Hahira use their tax refund for this.
• Don’t Ever Skip a Payment, Even if Your Lender says it’s Okay – Believe it or not, some lenders will allow you to skip a payment or two. It’s a common practice during the holidays. It may be tempting if you’re in the midst of financially difficult, but ultimately it only lengthens your loan term and makes you pay more interest.
• Refinance with a New Car Loan – Once you’ve made a couple of years’ worth of on-time, complete payments, you may be a good candidate for refinancing. But, only refinance if you can qualify for a lower interest rate. The lower interest rate will lower your monthly payment amount and make it easier to pay more than required each month.

Learn More About Paying Off a Car Loan Early with Valdosta Nissan!

Now that you know how to pay off a car loan early, and we’ve answered the question, “Is it good to pay off a car loan early?” feel free to reach out to our finance specialist with any questions. From financing a new Nissan to routine auto maintenance and car care tips, we’re here to help. So contact us today and let us know how we can be of service.