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Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early can be an enticing option for many Watertown drivers, but is it right for you? When is it good to pay off a car loan early and when should you hold off? Brookings Auto Mall is here to guide you through your financial options. Let’s find out whether or not you should consider making additional payments to speed up your loan.

What Are the Benefits of Paying Off a Car Loan Early?

One of the biggest benefits of paying off a car loan early is the money saved on interest. As you pay off your car loan, your balance will gradually decrease – and so will your interest. So the faster you pay off your car loan, the less you end up spending in total interest. Additionally, speeding up your monthly payments will help you reach the end of the loan faster. This can be a great option if you need to make more room in your budget for other financial goals in Brookings, as well as decreasing your debt-to-income ratio.

When Paying Off a Car Loan Makes Sense

  • If you have few or no other debts, paying off your loan early will help free up money that you can spend elsewhere.
  • If you have a sufficient emergency fund built up already, you have extra wiggle room to adjust your budget.
  • If you are planning for a major life change like a growing family or retirement, you can lower your monthly expenses in the long term.
  • If you want to improve your debt-to-income ratio, eliminating your car payment quickly will help.

When Paying Off a Car Loan Doesn’t Make Sense

  • If you are trying to build your credit score, it’s better to continue paying your loan on time as usual.
  • If you don’t have a rainy day fund built up, it’s better to take care of that first.
  • If you already have a terrific interest rate, you won’t benefit as much from paying off your car loan early.
  • If your car loan term agreements include penalties, paying off your car loan early might not be worth the cost.

How to Pay Off a Car Loan Early

There are several methods of how to pay off a car loan early, and our finance team can help you determine which is right for you:

  • Bi-Weekly Payments: Split your monthly payments in half and then make that payment every two weeks. This allows you to get in 13 payments every year instead of 12.
  • Round Up: Round up your monthly payments up $50 or whatever amount is within your budget.
  • Lump Sum: Make one large extra payment per year in a lump sum to save on your interest.
  • Refinancing: If you’ve made prompt payments for one or two years, you could consider refinancing to lower your interest rate.

Find Out More with Brookings Auto Mall

Paying off a car loan early can be a great choice for Mitchell drivers, and if you’d like to learn more about your financing options, contact us at Brookings Auto Mall. Our team in Brookings can help you work out a plan that helps you save big.

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