Can I Pay Off My Car Loan Early?

As you may know, when financing a car through a bank or other financial institution, you’ll be able to pay off the balance of the loan in monthly installments. A big question on the minds of Richmond car financing drivers is this: “can I pay off my car loan early?” The answer is yes! But it depends, from case to case, on whether it’s a financially sound idea. Keep reading to learn more about paying off a car loan early—and don’t forget to reach out to us with any questions—we’re here to help!

Is it Good to Pay Off a Car Loan Early?

It takes a bit of financial foresight and a good amount of saved up capital to pay off a car loan early. However, proper planning will reward you with a lower interest paid overall, and the guarantee that you won’t fall behind on your loan in the future—since it’s already paid off! Not only that, you’ll enjoy a lower debt-to-income ratio, bringing you one step closer to financial freedom or a new White Rock ride altogether!

When Paying Off a Car Loan Early Makes the Most Sense

• When you have little or no other debts to pay off.
• When you don’t have to sacrifice things like emergency funds to do so.
• You are attempting to lower your monthly expenses.
• You’re looking to improve your debt-to-income ratio.

When Paying Off a Car Loan Early Doesn’t Make Financial Sense

• If you don’t have much extra funds set aside for emergencies.
• If you’re paying on a loan with an exceptionally low interest rate, it may be the wisest decision to continue paying the loan, while simultaneously building your credit rating.
• If the car loan you’re in has prepayment penalties, it may actually be more costly to pay the loan off all at once.

How to Pay Off a Car Loan Early

There are a couple different methods to pay off a loan early—more than you might imagine! Of course, there’s the concept of paying one lump sum to pay off the loan, but there’s also these other options:

• Make Bi-Weekly Payments – Divide your normal monthly car loan payment in half, then make that amount as a payment every two weeks—you will effectively be making 13 full payments per year rather than 12. This isn’t the fastest method, but it works to accelerate the loan payoff slightly.
• Round Up Your Payment Each Month – Each time you make a monthly payment, round up the amount to the nearest $50 or even the next $100 for an extra boost to the payoff time of your loan.
• Make One Extra Payment Each Year in One Lump Sum – You can instead choose to make one large extra payment per year to achieve the same interest savings as the method mentioned above.

Learn More with Mercedes-Benz Surrey’s Finance Team!

So, is it a good idea to pay off a car loan early? For lots of Langley and Surrey drivers, the answer is yes! If you need help deciding if this is the right move for you, our finance team is easy to reach and has the expertise you need to get headed in the right direction! While you’re here, take a moment to learn more about all of your financing options, as well as your leasing options!