Paying Off A Car Loan Quickly

photo by Scott Graham via UnSplash

If you have some extra money to spare, you may want to pay off your car loan earlier so that you can do away with your monthly payment. This may seem like a sensible financial move, but it also comes with some drawbacks. Check out this helpful guide to determine whether you should get out of your auto debt sooner:

 

 

Things to Consider Before Paying Off Your Auto Loan Early

Although it may help you save money, paying off your car loan faster may not be beneficial in certain situations. Below are a few things you should take into consideration:

Prepayment Penalty

Some auto loans come with a prepayment penalty, which is a fee you need to pay for getting out of your loan sooner. If your lender charges a prepayment penalty, you should consider whether paying off your car loan earlier can help you save more than the cost of the fee.

Credit Score

Before you decide to repay your auto loan early, you should ask yourself this question: “Will paying my car loan build my credit?” When it comes to car loans, your credit score shouldn’t be affected if you pay back your lender sooner. However, keeping your auto loan account open can help you improve your credit score if you consistently make payments on time.

Other Debts

If you have a personal loan, credit card debt, or other debts that have a higher interest rate than your car loan, you should consider paying down those balances first so that you can save money on interest.

How to Pay Off a Car Loan Quickly

Unless you suddenly inherited a large amount of money or had a windfall from an investment, you likely won’t be able to repay your auto loan all at once. Follow these tips to pay off your loan more quickly:

  • Refinance to a better interest rate: If your credit score has improved after you bought your vehicle, you may be able to lower your interest rate through refinancing. With a lower interest rate, you can pay more toward your auto loan, which can help you close the account earlier.
  • Pay your loan biweekly: Divide your monthly car payment by two and pay that amount every two weeks. By doing so, you’ll make 26 payments instead of paying 12 times each year. This means you’ll make one additional payment each year.
  • Get cheaper auto insurance: If you’re able to reduce your auto insurance premium, you’ll have extra money to pay back your car loan. Shop around for the best deal or find out from your insurer if you qualify for any discounts.

Paying off a car loan earlier may not be the right move for everybody. If you need advice on this matter, feel free to speak with the knowledgeable and helpful finance experts at North Coast Auto Mall of Cleveland.

Benefits of Paying Off Your Auto Loan Faster

Having to pay your auto loan every month can be a significant financial obligation. The following is a number of reasons why you should consider paying off your vehicle as soon as you can:

Save on Interest

Depending on the terms of your auto loan, you may be able to save on interest if you pay back your lender earlier. If you have a simple-interest auto loan, the interest you pay depends on the amount you owe at any given time. In this case, the faster you pay off your loan, the more you’ll save on interest. If you manage to fully repay the principal one year in advance, you may pay hundreds of dollars less in interest.

Reduce Your Monthly Expenses

One of the main benefits of paying off your auto loan quickly is that you’ll have more money to spend every month. You can use the extra funds to pay down your student loan or mortgage or build an emergency fund.

Avoid Owing More Than Your Vehicle Is Worth

As your vehicle depreciates over time, you may end up owing more than its market value if you have a long-term auto loan. If this happens, you’ll have negative equity in your vehicle, which is also known as being “upside-down” on your car loan. Settling your loan sooner can help you avoid this situation.

Find Expert and Understanding Car Loan Assistance at North Coast Auto Mall

At North Coast Auto Mall of Cleveland, we understand the difficulties that come with credit and car loans. Our team of finance and vehicle experts are here to help you no matter your credit score or situation. We will work with you. To discuss your personalized finance options, please don’t hesitate to reach out to our team.

 

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