Can You Pay Off Your Car Loan Early?

If you decide to finance your vehicle, you will have to make monthly payments of a specific amount until the loan is paid back. What if you’d like to pay more than your monthly payment amount? Is paying off a car loan early even possible? For many Federal Way drivers, the answer to this question is yes, but is it good to pay off a car loan early? Sunset Kia of Auburn explores this option more in-depth below. 

In this guide, the finance team at Sunset Kia of Auburn will discuss the following: 

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

Is it Good to Pay Off a Car Loan Early?

There are several reasons why drivers may want to pay off a car loan early, and with careful financial planning and a diligent payment schedule, it can be done. If you pay off a car loan early, you can enjoy the benefits of lower interest paid overall, a decreased chance of becoming upside down on your loan, and a lower debt-to-income ratio. 

When Paying Off a Car Loan Early is a Good Idea

• You have little or no other debts to worry about
• You have enough extra funds saved up in case of an emergency
• Lowering your monthly expenses will help you reach a larger financial goal 
• You would like to boost your debt-to-income ratio

When Paying Off a Car Loan Early is Not a Good Idea

• You have limited funds set aside in case of emergency
• You have an exceptionally good interest rate
• You want to improve your credit score by making set monthly payments on time.
• Your car loan agreement has a penalty for early pay-off.

How to Pay Off a Car Loan Early

Wondering how to pay off a car loan early? There are a few methods to consider. Here are a few suggestions that may help you depending on your financial situation. 

• Don’t skip a payment, even if it’s offered – Some lenders will give you the opportunity to skip a payment or two each year. However, this just leads to a longer loan term and more interest. 

• Consider refinancing your loan – If you can get a lower interest rate by refinancing, it can help you spend less in interest over time. 

• Make payments on a bi-weekly basis – If your lender allows, divide your monthly car payment by two. Pay that amount every two weeks, and you will end up making 13 full payments per year instead of 12. 

• Round up your monthly payments – Round up to the nearest $50 each time you make a monthly payment.

• Make an additional lump sum payment each year – Making one large extra payment per year can also help you save on interest. 

Sunset Kia of Auburn Makes Auto Financing Hassle-Free

Is it good to pay off a car loan early? Paying off a car loan early can have many benefits, but it might not always be the best choice. Contact us today for more information. 

Paying off your loan early can save you some money, but whether you pay your loan off early or not, you’re already saving by buying from Sunset Kia of Auburn. The Sunset Auto Family gives drivers more for their money with Warranty Protection for Life and Oil Changes for Life, offering long-term savings on maintenance and peace of mind well beyond the factory warranty.