Should I Pay Off My Car Loan Early?
Can you pay off a car loan early? Yes. But should I pay off my car loan early? And is it good to pay off a car loan early? These answers are a little less straightforward. Just like any financial decision, there are advantages and disadvantages of paying off a car loan early. Find out whether this decision is right for you and your credit with Green Light Auto Credit of Herculaneum, MO.
Advantages of Paying Off a Car Loan Early
The average car loan length is around six years, and getting that bill out of the way can be a huge source of relief for many St. Louis and Florissant drivers. So, is it good to pay off a car loan early? Check out some of the most prevalent benefits:
- Interest: When you pay that bill off quicker than expected, that means you end up paying less interest than you would otherwise. That can save you a surprising amount of money!
- Debt Load: Planning another big investment? You can lower your debt-to-income ratio if you pay off that car loan ahead of schedule – which can help you get approved for that mortgage.
- Cash Flow: Want to free up more money for retirement or other expenses? Paying off your loan early frees up more money in your bank account!
Disadvantages of Paying Off a Car Loan Early
Does paying off a car loan early hurt your credit? There are some disadvantages of paying off a car loan early in certain scenarios, so it’s important to do the research before you make any big moves:
- Monthly Costs: If you bump up your monthly payments to shorten your loan term, you might find yourself more financially strapped in the meantime. Think about whether or not you can comfortably afford to speed up your car payments without sacrifices.
- Low Interest: How good is your current financing package? If you have a great interest rate, you might not benefit from paying off the loan early.
- Prepayment Penalties: Some auto loan agreements come with prepayment penalties you would have to pay if you paid it off early. Review your agreement or reach out to your lender if you’re unsure whether your loan comes with a prepayment penalty. If it does, is the extra money you’ll pay for that penalty worth the outcome of paying your loan off early?
- Refinancing: If your credit has improved since you signed your last contract, why not consider refinancing instead? This can help you lower your monthly payments, secure a better interest rate, and even work out a shorter loan term.
- Credit: Does paying off a car loan early hurt your credit? No. However, some individuals rely on their on-time, in-full car payments to help build their credit up. If this applies to you, it’s probably best to continue with the loan term you originally agreed to.
Get Personalized Advice From Green Light Auto Credit
If you want to find out more about what happens when you pay off a car loan early, feel free to get in touch with the financial experts at Green Light Auto Credit. We can help you determine what the best path forward is for your particular scenario, so don’t hesitate to contact us!
