Probably one of your largest monthly expenses is your car payment. Even with one of the best auto loan rates, you can still save a lot of money by figuring out how to pay off your loan faster. The Guides Auto Team will offer you methods for paying off your car loan early and explain whether doing so is appropriate for your financial circumstances.
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You have a new(ish) car. You have a substantial monthly payment. You have a bit extra stashed away. Then, you might be considering the implications of early car loan repayment.
You might gain in other ways in addition to having better monthly cash flow that you can use for other purposes (retirement, your upcoming trip, high-interest credit cards, etc.). So let’s examine when and how it can be advantageous for you to pay off a car loan early.
The perks of paying off a car loan early
Let’s examine some reasons why it can be advantageous for you to pay off your loan early before getting into the specifics. You can….
- Free up monthly income for something else
- Save money on interest
- Potentially improve your credit
- Avoid owing more than your car is worth
Should I consider paying my car loan off early?
As you can see, there may be advantages to paying off a car loan early. However, you should speak with your lender before making any changes. It might not be as simple as writing a large check to your bank and calling it a day. Early payment penalties are a feature of some loan agreements that can defeat the goal of paying off your loan early.
Saving money on interest
It’s time to plan if paying off debt early seems like a good idea. If you have a simple interest loan, the main benefit of paying it off early might be the interest you save.
Why you may not want to pay off your loan early
You might determine that early car loan repayment is not worthwhile. You might find that there is a prepayment penalty assessed by your lender, that paying off the loan early will put too much strain on your finances, or that you have other credit cards or loans with higher interest rates that you should pay off first. Some individuals prefer to have a “cash cushion” set aside for unforeseen expenses, such as car loans, which could be severely impacted if the entire balance is paid off.
In certain circumstances, paying off your loan early may help your credit, but maintaining a loan can also help you establish credit by, among other things, maintaining timely payments and developing a credit history. However, if your credit is already good, it might not matter.
What happens when you pay off a car loan?
Soon after your car loan has been paid off and all contract requirements have been met, you should anticipate receiving the vehicle’s title or release document. After obtaining the required paperwork, you must visit your state’s motor vehicles department to legally transfer the title of your car into your name.
Paying off a loan early: five ways to reach your goal
There are five ways to achieve your goal of paying off your loan early or in full once you’ve made the decision to do so:
- Make a full lump sum payment. When you make a full lump sum payment, the entire auto loan is paid off at once. To find out how much your loan will pay off, speak with your lender. This will include the total amount due on the day you intend to make the payment, including interest and any unpaid fees. This is an excellent way to pay off your loan in full at once if you find that you have the money to do so.
- Make a partial lump sum payment. You can pay ahead of your loan schedule by making a few months’ worth of payments if you have extra money saved up or received a bonus. This can help you save money on interest by allowing you to pay off your loan more quickly.
- Make extra payments each month. This can be accomplished by choosing to make payments every two weeks, adding an extra $50 here and there, or even doubling your payment if you happen to have extra money.
- Make larger payments each month. An easy way to do this is by rounding up. Let’s say your monthly payment is $564. Instead, round it up to $600. The difference will feel small to you but can compound. Additionally, you can figure out how much a shorter loan term would cost each month and begin making payments accordingly. If your loan is 24 months long, for instance, begin estimating how much each month you would have to pay if it were an 18-month loan, and base your payments accordingly.
- Request extra or larger payments to go toward your principal. If your lender permits it, it can help you accumulate equity more quickly rather than having your monthly payments go primarily toward interest. However, they may not.
Paying off your auto loan early could be a wise decision, depending on your financial situation and the terms of the agreement. Alternatively, you might find that it helps to continue making your regular payments on time. Whatever your thoughts, we advise speaking with your lender to prevent any additional costs or penalties.
What to read next
This article offers general auto information solely for educational purposes. The information isn’t meant to be financial, tax, or legal advice, or to suggest which JPMorgan Chase Bank is available or appropriate for you. A. product or service. Outlooks and past performance are not guarantees of future results. Chase does not supply, support, or take responsibility for any goods, services, or other content offered by third parties. If you would like specific advice regarding your situation, you should speak with a licensed professional.
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FAQ
Is it good to pay off a car loan early?
The bottom line. If you have no other high-interest debt and the lender doesn’t impose an excessive prepayment penalty, paying off your car loan early can result in financial savings. Making a few extra payments can significantly lower your expenses.
What happens if I pay an extra $100 a month on my car loan?
If you pay more, your car payment won’t decrease but the loan will be paid off sooner. Depending on how quickly you pay off the loan and how high your interest rate is, making additional payments may also help you save money on interest.
Read More :
https://www.lendingtree.com/auto/refinance/how-to-pay-off-your-car-loan-faster/
https://www.chase.com/personal/auto/education/financing/paying-off-car-loan-early