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Paying Off Your Car Loan Early

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Any Wallingford resident who takes out an auto loan to pay for a brand-new or previously-owned vehicle will be required to make regular payments at a predetermined amount. What if, however, you want to pay more than the minimum required each month? Is paying off a car loan early possible? In many cases, it is possible to pay off a vehicle loan early in Milford. 

 

 

The finance department of Hamden Chevrolet has compiled this manual to assist you with the following:

  • Is it good to pay off a car loan early? We’ve got answers. 
  • How to pay off a car loan early. Important things to remember. 

Determine if it’s worth it to you to try to pay off your auto loan early, and then read on for some useful advice on how to do it. If you have other questions, check out our car buying tips section for more advice! 

Is it a Good Idea to Pay Off a Car Loan Early? 

Paying off a vehicle loan early requires careful budgeting and hard work, but the benefits are worth the effort: less interest paid overall, reduced risk of going upside down on the loan, a lower debt-to-income ratio, and a step closer to financial independence.

Things to Consider When Paying Off a Car Loan Early

The following situations are ideal scenarios for paying off a car loan early: 

  • You are trying to reduce your monthly expenses to save up for a larger financial goal like retirement or starting a family, 
  • You have little or no other debts to pay off first.
  • You have enough extra funds saved or enough wiggle room in your budget that making larger monthly car payments won’t affect your emergency funds and other finances.
  • To lower your debt-to-income ratio.

Sometimes, it’s not good to pay off a car loan early. Consider the following scenarios: 

  • You don’t have much of a savings buffer.
  • If your interest rate is unusually low, it may be in your best interest to keep paying your regular monthly payments as scheduled. 
  • You could be better off investing in your retirement or saving up for a significant. purchase like a house with the money you’d spend to pay off your loan early.
  • There may be prepayment penalties if you decide to pay off your auto loan early.
  • You’re financing because you want to establish or improve your credit history or credit score. 

You’d want to avoid paying any penalties by making your payments on time if you’re financing to improve your credit score. 

Tips for Paying Off a Car Loan Early

You can accomplish paying off your vehicle early in a few different ways. Look these options over and see which option best suits you:

  • Divide your monthly auto payment in half, and then make that payment amount every two weeks; just make sure this is OK with your lender first. Thanks to this plan, you’ll be making 24 annual payments instead of 12.
  • Round up to the closest $50 or $100 when you pay your loan each month
  • A single year additional payment has to be made in a lump sum. Instead of rounding up your monthly payments to the nearest dollar as described above, you may make one significant additional payment once a year and still save money on interest.
  • Depending on the lender, you may be able to miss a payment once or twice a year on your auto loan. Though it could seem appealing amid a tight financial month, doing so will merely extend the duration of your loan and increase the total amount of interest you will pay.

After one or two years of making your payments on time and in full, you may qualify for refinancing with a new auto loan. Naturally, you should only refinance if doing so would provide a reduced interest rate. Because your monthly payment will be less because of the reduced interest rate, you’ll have more disposable income toward principal reduction.

Contact Hamden Chevrolet to Find Out More!

Is it reasonable to pay off a car loan early when it comes to financing? Most drivers in North Haven would say yes to that question. Contact us at Hamden Chevrolet to learn more about the financial benefits of paying off your auto loan earlier than expected. If you need reliable advice on purchasing a car, our finance team is here to help. 

 

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