While continuing to make timely car loan payments can add to your payment history and improve your credit score, paying off your loan early has its advantages. The benefits can not only positively impact your credit, but your wallet, too. At the same time, closing a loan won’t hurt your credit score, but keeping it open may actually help.
Deciding if Early Loan Payoff Is Right for You
When you're trying to decide if paying off your auto loan is the right thing to do, you need to look at a few factors first:
- Your credit – Having an installment loan that you're making on-time payments on is a wonderful way to boost your credit. Also, successfully paying a car loan shows lenders that you've done it before and it can make getting your next auto loan that much easier.
- Your vehicle – If your car is rapidly depreciating and you're underwater, you can reduce the time you have negative equity by making more – or larger – loan payments.
- Your finances – Are you able to pay off your auto loan early? Are there other expenses that would benefit from outright ownership of a vehicle and the additional income available by eliminating your car loan payment?
Whether or not paying off an auto loan early is the right choice for you depends on your situation. Making regular payments on a car loan helps your credit, and it could be worth keeping open, especially if this loan is the only thing your credit has going for it. At the same time, paying it off always helps your cash flow.
Paying Off Your Auto Loan Early
There are several ways you can go about paying off your auto loan early. Before you decide to go for it though, make sure there isn't a prepayment penalty in your contract. One benefit to paying off your car loan early is that you save money in interest charges. Depending on how quickly you pay down your loan, you could save hundreds of dollars.
Here are three ways you can go about getting your loan paid as early as you please:
- Split your loan payment in half – You can pay your loan off earlier by making half your loan payment every two weeks. Doing this amounts to making 13 full payments a year instead of 12.
- Round up your payment – For example, if your loan payment is $375 a month, rounding up to $400 is a great way to make an impact.
- Pay what you can, whenever you can – There doesn't have to be a set schedule for paying off your auto loan early. You can throw an extra $20 at it whenever you can, or make an extra-large payment after you get your tax refund. It's your loan, so as long as it's getting paid on time, you can benefit as much or as little as you choose.
The Bottom Line
No matter how you choose to do it, paying off your car loan early is a good way to save yourself money in interest charges. Whether you pay off your loan early or not, when you need your next auto loan, The Car Connection is here for you. Not only can we provide you with car loan advice and a way to research your next vehicle, but we can make searching for an auto loan a breeze.
All you have to do is fill out our free, no-obligation car loan request form. Once you do, we'll get to work connecting you with a local special finance dealership that has the lending resources available to provide you with the financing you need.