How Do I Pay Off My Car Loan Early?

Finance Agreement
 

If you’ve chosen to finance a new Nissan or pre-owned car from HGreg Nissan Kendall, you have a loan with a set monthly payment. Each month, you make a payment on the loan until you’ve paid off the car in full. Normally, payments are on a set schedule, but there are some situations where you can pay off a car loan early. Paying off a car loan early is a viable option for many South Miami individuals. Follow along with the finance team at HGreg Nissan Kendall to learn when it’s good to pay off a car loan early and how to pay off your car loan early, then read more about what it means to finance your car.

 

When Is It Good to Pay Off a Car Loan Early?

While it may be tempting to pay off your car loan early, you will need a solid financial plan to do it properly. However, paying off a car loan early results in lower interest paid overall, decreased chances of becoming upside down on your loan, a lower debt-to-income ratio, and you’ll be one step closer to financial freedom. Read more about when it’s a good idea to pay off a car loan early and when it isn’t. 

When Paying Off a Car Loan Early Makes Sense

  • You have little or no other debts to take care of and would like to get your car loan paid off, so you can free up money for other expenses.
  • You have enough extra funds saved up or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances.
  • You are attempting to lower your monthly expenses to plan for a larger financial goal, such as entering retirement or growing your family.
  • You’re looking to improve your debt-to-income ratio.

When Paying Off a Car Loan Early Isn’t the Best Option

  • You don’t have extra funds set aside for emergencies.
  • If you have 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, such as a mortgage.
  • You’re using your on-time, set monthly payments to build your credit history or raise 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

If you’ve planned your Homestead finances and have decided to pay off your car loan early, there are a few paths you can take. Read below to see the different ways you can pay off your car loan early with a Pinecrest financier: 

  • Make Bi-Weekly Payments – Check with your lender first to ensure it’s okay to use this technique; divide your monthly car payment by two, then make that payment amount every two weeks. Using this method, you will effectively be making 13 full payments per year rather than 12. 
  • Round Up Your Payment Each Month – Each time you make a monthly payment, round up the amount to the nearest $50.
  • Make One Extra Payment Each Year in One Lump Sum – If you’d rather not round up for each monthly payment using the above method, you can instead choose to make one large extra payment per year to achieve the same interest savings. 
  • Resist the Temptation of Skipping a Payment – Believe it or not, some lenders allow you to skip one or even two car loan payments per year. This may be tempting if you’re in the midst of a rough month financially, but it will only lengthen your loan term and tack on more interest.
  • Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you might be a good candidate for refinancing. Of course, you should only refinance if it’s securing you a lower interest rate. The lower interest rate will lower your monthly payment, making it easier to pay more than what’s required each month so you can pay off your loan early.

Explore Your Financing Options with HGreg Nissan Kendall

If you’re still unsure if you should pay off your car loan early, sit down with our Palmetto Bay finance team to go over your loan options. While you’re here, you can read our other car buying tips like what the difference is between a used and a certified pre-owned car! Learn more about car financing with HGreg Nissan Kendall today! 

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