Paying Off a Car Loan Early: Is It Possible?

 
Auto loan financing is one of the most reliable methods of financing a brand new or pre-owned Volkswagen vehicle in the Monroe area. You simply have to set a monthly payment amount and pay it off on time.

But what if you’d prefer the option of paying off car loan amounts earlier? Is it good to pay off car loans early? Yes, paying off car loans early is a smart and viable option for many drivers throughout the Concord region. Learn how to pay off a car loan early with the experts at Carolina Volkswagen!

Is It Good to Pay Off a Car Loan Early?

So, is it a smart idea to pay off your car loan ahead of time? You’ll need to properly manage your finances to pay off car loans early. However, the perks are too good to pass up. Paying off your car loan ahead of schedule lowers your overall interest payments, decreases your chances of becoming upside down on your loan, and lowers your debt-to-income ratio. Nevertheless, we’ve broken down when is and isn’t a good time to pay off your car loans early for your convenience:

When It Isn’t Good to Pay Off a Car Loan Early

• You don’t have many extra funds set aside for emergencies.
• If you have an excellent 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.

When It Is Good to Pay Off a Car Loan Early

• 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.

How to Pay Off a Car Loan Early?

So, how exactly do you pay off your car loan early? You have a few methods available to finance the rest of your auto loan payments before their mandated due date:

• 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.
• 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.
• 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.
• Round Up Your Payment Each Month: Each time you make a monthly payment, round up the amount to the nearest $50.
• 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.

Pay Off Your Auto Loans Ahead of Time with Carolina Volkswagen

Here at Carolina Volkswagen, our savvy Finance specialists are here to help you handle your remaining auto loan debt. We offer the finance information and tips you need to pay off your car loans early without messing up your budget or incurring unnecessary accounting errors. Simply contact us online for further assistance today!