Can I Pay Off My Car Loan Early?

finance paperwork with giant calculator


Paying off your car loans early can be a responsible financial investment for Peachtree City individuals. In this guide, the finance team at Butler Lexus of South Atlanta will help you learn:

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

Keep reading to determine whether you should work towards early car loans payments, and how to execute these goals!

Is it Good to Pay Off a Car Loan Early?

It takes good financial planning and a lot of diligence to pay off a car loan early, but you’ll be rewarded with lower interest paid overall, decreased chances of becoming upside-down on your loan, a lower debt-to-income ratio, and you’ll be one step closer to financial freedom as you navigate Fayetteville.

Would paying off a car loan early be worth the extra amount being paid each month? Would it be a sensible investment of your time and budget? It may seem like a hassle now, but the flip side would be that you would be rewarded with lower interest payments, decreasing your chance of becoming upside-down on your loan, and a lower debt-to-income ratio. Here are more contexts where paying off a car loan early makes sense and when it doesn’t:

When Paying Off a Car Loan Early Makes Sense

  • When you have little or no other debts to take care of so you can free up money for other expenses
  • When you have enough extra funds saved up that won’t affect your emergency funds and other finances
  • When you’re looking to improve your debt-to-income ratio
  • When you are attempting to lower monthly expenses to plan a larger financial goal

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

  • When you don’t have a lot of emergency funds set aside
  • When you don’t have an exceptionally good interest rate it might be wiser to invest it in a retirement fund or a future financial goal
  • When you are trying to build a credit score or credit history via on-time payments
  • When you are trying to avoid prepayment penalties

How to Pay Off a Car Loan Early

There are a few methods you can follow to pay off your car loan early. Take a look to determine which route makes the most sense for yourself:

  • Make Bi-Weekly Payments – If your lender allows it, you can divide your payment in two and pay biweekly. Using this method, you will effectively be making 13 full payments per year rather than 12. 
  • Round-Up Your Payment Each Month – You can round up to the nearest $50 every time you make a monthly payment.
  • Make One Extra Payment Each Year in One Lump Sum – You can choose to pay one large payment per year if you prefer not to round up each month.
  • Resist the Temptation of Skipping a Payment – Even though skipping a payment or two can be tempting if allowed, it might be better to avoid doing so for the sake of rising interest.
  • Refinance with a New Car Loan – Once you’ve delivered one or two years’ worth of on-time, in-full payments, it might be worth it to consider refinancing. Refinancing could be a good investment if it secures you a lower interest rate that will lower your monthly payment.

Learn More with Butler Lexus of South Atlanta!

For many Newnan drivers, paying off your car loans early is a wise investment. If you would like more tangible plans on how you can pay off your loans early, check out our payment calculator or contact us at Butler Lexus of South Atlanta today!

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