Is it Good to Pay Off a Car Loan Early?

Are you one of the Norfolk drivers thinking of paying off your car loan early but are wondering if it’s good to pay off a car loan early? For most people, it is good to pay off a car loan early, but not if it stresses you out and creates problems in your financial situation. Here, the Rick Hendrick Chevrolet Norfolk finance team near Virginia Beach explains how to pay off a car loan early and when it’s a good idea. Feel free to reach out to our finance specialists if you have any questions!

Should You Pay Off Your Car Loan Early?

Rick Hendrick Chevrolet Norfolk knows that you have financial goals for your Chesapeake lifestyle, but should paying off your car loan early be one of them? It takes commitment to pay off a car loan early, but you’re rewarded with lower long-term interest and lessen the chance of becoming upside-down on your auto loan. You will also strengthen your credit rating because of a lower debt-to-income ratio and be closer to financial freedom!

When to Pay Off a Car Loan Early

• You want to improve your debt-to-income ratio to positively affect your credit score
• You have little or few other debts and want to get your auto loan paid off so you can free up money for other purposes
• You want to lower your monthly expenses to plan for a larger financial objective, such as retirement or a mortgage
• You have enough monthly wages or saving so that making larger monthly car payments or an additional yearly lump sum payment won’t negatively impact your emergency funds and other finances

When Not to Pay Off a Car Loan Early

• You don’t have much saving set aside for emergencies
• If you have a remarkably low interest rate, it may be wise to continue making your on-time payments in the original monthly amount because the funds you’d use to pay your loan off early might be better used to save for retirement or a future financial goal, like a downpayment for a house
• You’re using your on-time standard monthly payments to strengthen your credit rating
• Unfortunately, some auto loan agreements have prepayment penalties. If this is the case, you should avoid those penalties by keeping your regularly scheduled payment amount. 

How to Pay Off a Car Loan Early

So, how do you pay off a car loan early so you can enjoy your Suffolk drives even more? There are a few ways. Take a look below to determine which one makes the most sense for you:

• Make Bi-Weekly Payments – Check with your lender to make sure it’s okay to use this method. Then, divide your monthly car payment in two, and make that payment amount every two weeks. When you use this method, you will make 13 total payments per year rather than only 12. 
• Round-Up Your Payment Amount Each Month – Each time you make a monthly payment, round it up to the nearest $50 or $100.
• Make One Extra Payment Each Year in One Lump Sum – Use your tax refund or annual bonusto make one sizeable extra payment each year.
• Don’t Skip a Payment, Even if Your lender Says it’s Okay – It’s not uncommon for some lenders to allow you to skip one or two loan payments, especially around the holidays. It may be tempting, especially if your budget is tight, but it will only lengthen your loan term and increase the total interest paid.
• Refinance to a New Auto Loan with a Lower Interest Rate – If you’ve made one or two years’ worth of on-time, complete payments, you may be a good candidate for refinancing, but only if you can secure a significantly lower interest rate. The lower interest rate will lower your monthly payment and make it easier to pay off your car loan early by contributing more than required.

Rick Hendrick Chevrolet Norfolk is Your Best Auto Financing Resource!

Now that we’ve answered the questions, “Is it good to pay off a car loan early?” and “how to pay off a car loan early?”, turn to Rick Hendrick Chevrolet Norfolk for all your auto financing needs. We’re here for you, from a favorable new car loan to a trade-in value for your existing vehicle and more! You can even apply for financing online, so reach out to us today and let us know how we can be of service.