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How to Pay Off a Car Loan Early

Car key & credit card on a signed contract


The process of auto financing in West Lafayette is simple. You make monthly payments for your new or used vehicle until you’ve paid the full amount. But, what if you’re interested in paying off your car loan early? Learning how to pay off a car loan early takes a little planning, but it can be a good way to free up extra funds if you’re able to do so. Let’s go into the basics to determine if it’s a good option for you.

Is it Good to Pay Off a Car Loan Early?

Learning how to pay off a car loan early can be a great way to stay on top of your finances in Indianapolis, but it takes some extra effort and preparation. Here are some scenarios to consider when trying to assess “Is it good to pay off a car loan early for me?”

When Paying off a Car Loan Early is Beneficial

  • You have little or no other debts, and you’d like to free up money for other things.
  • You have extra funds saved up that larger monthly payments will not affect your budget or emergency funds. 
  • You want to lower your monthly payments to help achieve other financial goals, like early retirement or planning a family.
  • You want to improve your debt-to-income ratio.

When Paying off a Car Loan Early is Not Beneficial

  • You don’t have an emergency fund.
  • You’re using your monthly payments to build your credit score.
  • You already have a good interest rate. The extra money spent paying off your car loan might be better used toward another goal if your interest rate is already very low.
  • You have prepayment penalties built into your loan agreement. These fees might be more trouble than they are worth.

Methods to Pay Off a Car Loan Early

If you’ve determined that this is the best path for you, you have several options for paying off a car loan early in Crawfordsville. Here are some recommendations:

  • Make Bi-Weekly Payments – Split your monthly car payment in half, then make that payment amount every two weeks. This results in making 13 full payments per year rather than 12, but make sure your lender will allow you to do this.
  • Round Up Your Payment Each Month – Instead of paying the normal monthly amount, round up your payments by $50 to speed up payments.
  • Make One Extra Payment Each Year in One Lump Sum – Make one large extra payment per year. This helps you save on interest while getting ahead of your payments.
  • Resist the Temptation of Skipping a Payment – Even if your lender allows you to skip a payment or two without penalty, sticking with your normal schedule will help you shorten the length of your loan.
  • Refinance with a New Car Loan – After one to two years of paying on time and in full, consider refinancing to get a lower interest rate. The lower interest rate will lower your monthly payment amount, allowing you to pay off your loan more easily.

Explore Your Auto Financing Options in Lafayette 

Is it good to pay off a car loan early? The finance team at Auto Express can help you decide. Contact us with any questions about the auto financing process and learn more with our car-buying guide!

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