How Do You Pay Off A Car Loan Early?

Car Loan

If you choose to finance your next used car with an auto loan in Williston you will have a set monthly payment amount that you must pay in order to fully pay off the loan in time. What if you would like to pay more than the monthly payment? The process of paying off car loans early is a viable option for Bismarck drivers.

You will find below a guide put together by the finance team at Ideal Auto covering the following topics:

  • Is it good to pay off a car loan early?
  • How to pay off a car loan early

Keep reading to help determine if you should start working towards paying your car loan off early. Explore the tips below to learn more.

Tips: Is it Good to Pay Off a Car Loan Early?

Good financial planning and diligence are required to pay off your car loan early. You will be rewarded with low overall interest payments, decrease the chance of going upside down on your loan, lower your debt-to-income ratio and come closer to financial freedom!

How to Pay Off a Car Loan Early: The Right Time

  • When you have minimal debts otherwise and would like to get your vehicle paid off early to put money towards other expenses.
  • If you have extra funds saved and enough wiggle room in your budget so larger monthly payments won’t affect any of your other finances.
  • If you are trying to lower your monthly expenses in order to plan for other goals like retirement or family planning.
  • If you are looking to improve your debt-to-income ratio.

Why Paying Off a Car Loan Early Can Be A Bad Idea

  • If you don’t have many extra funds set aside for emergencies.
  • With an exceptionally good interest rate, it may be smarter to just continue making on-time payments in the agreed upon monthly amount. The money you’d use to pay your loan off early could be better served if you set it aside in a retirement fund or for a future financial goal.
  • You are using your on-time, set monthly payments to build your credit history or improve your credit score.
  • Some car loan agreements include prepayment penalties. If this is the case, you would of course want to avoid those penalties by adhering to your regularly scheduled payment amount.

How to Pay Off a Car Loan Early

There are a few methods you can follow to pay off your car loan early. Take a look to determine which route makes the most sense for yourself:

  • Make Bi-Weekly Payments – First, you need to check with the lender to make sure this is okay; divide your monthly payment by two, then make that payment amount every two weeks. If you use this method you will make 13 full payments per year instead of 12.
  • Round Up Your Payment Each Month – Every time you make your payment, round it to the nearest $50 amount.
  • Make One Extra Payment Each Year in One Lump Sum – Instead of rounding up each month, you can choose to make one extra lump sum payment per year to achieve the same saving on interest.
  • Resist the Temptation of Skipping a Payment – Some lenders will allow you to skip one or two car payments per year, this may be tempting, but it will only increase the loan term and end up increasing the interest you pay.
  • Refinance with a Used Car Loan – If you made one or two years of on-time and in-full payments, you could be a great candidate for refinancing your vehicle. You should only refinance if it will end up providing you with a lower interest rate. The lower interest rate will decrease the monthly cost and make it easier to pay more at one time and eventually, you can pay your loan off early.

Learn More with Our Finance Team at Ideal Auto!

Are you still wondering, is it good to pay off a car loan early? Well, Bismarck drivers may find the answer is a definite yes after assessing their current financial situation. You can contact us at Ideal Auto to learn about how you can save money. Explore more car buying tips today!

Ideal Auto 48.20342, -101.3122393.