Can I Pay Off My Car Loan Early?
If you’ve taken out an auto loan to purchase a new or used car, you may be wondering if paying off a car loan early is a good idea. If you have room in your budget to increase your monthly payments, you can indeed pay off your car loan early. What’s more, you’ll be able to save some money on interest along the way. Find out more about how to off a car loan early, and if it’s a smart move for you with Porsche Fremont’s finance center.
Is it Good to Pay Off a Car Loan Early if You Can?
While it can take some dedication, paying off a car loan early can be a smart decision. Not only will you benefit from a lower debt-to-income ratio and a decreased chance of becoming upside-down on your loan, but you’ll also pay less in interest overall. However, the answer to the question, “Is it a good idea to pay off a car loan early,” can depend on your situation:
Consider Paying a Car Loan off Early
- If you have little or no other debts that need attention, and you want to free up additional finances.
- If you have more than enough put away in your emergency fund and can spare some without risking your financial well being.
- If you now have some extra wiggle room in your budget and putting money towards your car loan won’t impact other financial needs or goals.
- If you want to lower monthly expenses before making a change like retiring or growing your family.
- If you want to improve your debt to income ratio.
Avoid Paying a Car Loan off Early
- If you don’t yet have a robust emergency fund to cover the unexpected.
- If you’re looking to use set monthly payments as a tool to raise your credit score.
- If your loan agreement includes prepayment penalties. If this is written into your agreement, you may save more by sticking to the regular payment plan.
- If you have an exceptionally good interest rate. In this case, it may be beneficial to put extra funds towards other payments, like your mortgage, or invest it in a retirement plan.
Guide on How to Pay Off a Car Loan Early
If you’re committed to paying your car loan off early, you may be wondering how to do it. Here are a few suggestions on how to pay a car loan off early from Porsche Fremont:
- Round-Up Your Monthly Payments– Continue making monthly payments, but round them up $50.
- Make Bi-Weekly Payments – Before trying this method, you’ll need to check with your lender. If they give you the okay, divide your monthly car payment by two, then make that payment amount every two weeks. Stick with this method and you’ll end up effectively making 13 full payments per year rather than 12.
- Make One Extra Payment Each Year – If you would rather not worry about rounding up or making extra payments each month, you can make one extra payment for the year in one lump sum.
- Refinance Your Auto Loan – If you have been consistent with your payments for a year or two, you may be able to refinance your car loan for a lower interest rate. This can decrease your payments and the amount going towards your interest, which can allow you to pay off the vehicle sooner.
- Avoid Skipping a Payment – Some lenders will allow you to skip one payment over the course of a year. If you have a rough period, it can be tempting to take them up on this offer, however, doing so will only extend the length of your car payments.
If you want to find a vehicle that fits easily into your budget and allows you to pay it off early, use our payment calculator to help personalize and estimate your payment plans.
Learn More About Financing With Porsche Fremont
If you’re looking for a savvy way to enjoy the power of a Porsche from Santa Clara to San Leandro, the Porsche Fremont finance center is here to help. Along with offering a variety of incentives, our advisors can help you with tasks like refinancing your auto loan. Contact us to get started.