Paying Off a Car Loan Early: Is it a Good Idea?
If you’re considering paying off your car loan early, you’ll be happy to know that it is possible. While your Livonia new or used Chevrolet has a set loan amount when financing, it is possible to get ahead on the payments by contacting the team at Gordon Chevrolet, Inc.. We’ll help you decide if it is good to pay off a car loan early, and the best steps for how to pay off a car loan early.
Pros and Cons of Paying Off a Car Loan Early
Before you consider getting ahead on a car loan, you should create a financial plan, and think about contacting a financial advisor to create the best plan to tackle the debt. With a good plan in place to pay off their car loan early, drivers have the chance to achieve these outcomes:
- Lower the overall interest paid
- Decrease chances of becoming upside down on the loan
- Lower debt-to-income ratio
When Paying Off a Car Loan Early Makes Sense
It’s a common option to finance a new or used car instead of paying the full amount upfront. Over time, individual situations change, and you may start wondering “is it good to pay off a car loan early?” Getting ahead on the loan makes sense if these situations apply:
- You have little to no other debt and are equipped with the extra cash to add towards the loan.
- You have savings you want to apply to the car loan.
- You’re planning ahead by lowering out-going expenses for a future retirement or incoming family member.
- You’re looking to improve your debt-to-income ratio.
Getting ahead on a car loan is meant to put you in a better financial position. Make sure that paying off a car loan early doesn’t put you in a situation where it affects your lifestyle around Canton or you have to dip into the emergency funds.
When Paying Off a Car Loan Early Should Wait
While planning to get ahead on a loan is tempting, it may not always be the right option. It’s probably not good to pay off a car loan early if these situations apply:
- You have no extra money for emergencies.
- You already have a fantastic interest rate.
- You’re interested in growing your credit or improving your overall credit score by making steady monthly loan payments.
- The loan agreement has a prepayment penalty. Getting ahead on a loan isn’t beneficial when you have to also pay added fees to do so.
Tips for How to Pay Off a Car Loan Early
Once you’ve made the decision to put more money towards your car loan, there are several ways to go about it. Here are some ways for how to pay off a car loan early:
- Biweekly Payments: Create biweekly payments by dividing the monthly amount in two, and making a payment every two weeks. This means that by the end of the year, you’ll have made thirteen payments instead of the usual twelve. However, not all lenders allow biweekly payments. Be sure to verify this method with the car loan lender first.
- Round-Up the Monthly Payments: Every bit towards the loan counts. By rounding the payment up to the nearest fifty dollars, you get ahead on the loan.
- Make One Extra Lump Sum Payment: With one large extra lump sum payment each year, you can put a dent in the car loan and receive the same interest savings, similar to if you rounded up your payments.
- Avoid Skipping a Payment: While many lenders excuse a couple skipped payments when notified in advance, it’s usually only intended for emergency situations. Skipping a payment can not only lead to extending the length of the loan, it can also lead to accruing additional interest.
- Consider a Refinanced New Car Loan: When you have a history of full and timely payments, you may have the option to refinance your loan after two years. The goal is to refinance the loan and receive a lower interest rate than what you have currently. With the lower interest rate comes lower monthly payments, and the additional money saved can go towards paying off the loan early.
Some of these techniques can be used at the same time. Contact the Gordon Chevrolet, Inc. finance team to discuss how you can pay off a car loan early.
Explore Your Financing Options With Gordon Chevrolet, Inc.!
Whether you’ve decided it is good to pay off a car loan early or not, the team at Gordon Chevrolet, Inc. is here to help you. Contact us, and we can walk you through the benefits of financing vs. leasing, finding new vehicle specials, and much more!