Can I Pay Off My Car Loan Early?

Car Loan

 

When you finance your new or used car from Suntrup Hyundai South, you’ll be given a set monthly amount that you must pay regularly in order to pay the loan off in time. But did you know that you can actually pay more than your monthly amount to pay the loan off early? This is a perfectly viable option for St Louis drivers, although you should carefully consider your financial situation before making any decisions.

We’ll be discussing two important topics in this guide:

  • When paying off a car loan early is or isn’t a good idea
  • How to pay off a car loan early

The guide below should tell you everything you need to know about paying off a car loan early. If you want more information, feel free to check out our finance center!

Is it Good to Pay Off a Car Loan Early?

So, is it good to pay off a car loan early? The first thing you’ll want to do is take a look at your financial situation and see if it’s viable to pay off your car loan early. Paying off a car loan early rewards you with a lower debt-to-income ratio, lower interest paid overall, and a closer step to financial freedom. Take a look at the information below and consider which applies to your finances.

When Paying Off a Car Loan Early Makes Sense

Advantages of paying off a car loan early include:

  • You want to lower your debt-to-income ratio
  • You have enough room in your monthly budget to make higher payments without negatively affecting your funds
  • You have a larger income goal that you’re motivated to lower your monthly expenses for (such as buying a house or saving for retirement)
  • You want to free up money for your other expenses, and you have little to no additional debts to pay off

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

Disadvantages of paying off a car loan early:

  • You have a good interest rate and want to continue making on-time payments to preserve it. You can set aside the extra money you’d use for paying off the car loan early for longer-term financial goals
  • You want to use on-time payments to improve your credit score or build up your credit history
  • You don’t want to risk prepayment penalties, which some car loan agreements include. Make sure your agreement doesn’t have these penalties before making a decision.
  • You don’t have enough wiggle room in your budget to make larger payments

How to Pay Off a Car Loan Early

If you’ve determined that it makes financial sense for you to pay off your car loan early in Jefferson County, there are a few different ways to do it. These are the most common:

  • Biweekly payment: If you divide your monthly car payments in two, then pay each amount every two weeks, you’ll be making 13 payments a year instead of 12. Be sure to check with your lender to make sure it’s okay to make this alteration beforehand.
  • Rounding up: Round your monthly payment amount up to the nearest $50 so you end up paying slightly more each month.
  • Don’t skip any payments: Your lender may let you skip one or two payments per year, but this just means you’re racking up more debt and putting more interest on your payments, so resist the temptation!
  • Make One Extra Payment Each Year in One Lump Sum: You can use the “rounding up” technique to determine a bit of extra money to pay each month, but instead compile it into a lump sum that you pay at the end of the year (e.g. $12 per month = $144 paid at the end of the year).
  • Refinance with a new loan: You could qualify for refinancing if your payments are reliable, on time, and in full. You should only think about refinancing if you’re getting a lower interest rate, which in turn lowers your monthly payments and makes it easier to pay the loan off early.

Learn More with Suntrup Hyundai South!

If you have any questions or want more information about paying off a car loan early, you can contact our office anytime! You can also come by our dealership for test drives around St Charles if you want to get behind the wheel of one of our Hyundai models yourself. And be sure to check out our car buying tips for a wide variety of advice on buying a Hyundai, including insurance, budgeting, and financing.

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