Paying Off a Car Loan Early

Tiny car with coins and finance paperwork
 

Many Long Branch drivers ask our finance department if it’s possible to pay off their car loan early. The answer is: yes! You can absolutely pay off your car loan early and enjoy having no car payment on your new or used Toyota vehicle. Learn more about whether it’s good to pay off a car loan early and how to pay off a car loan early with Galaxy Toyota below, or contact our finance center if you have any specific questions about your finance plan.

Is it Good to Pay Off a Car Loan Early?

While you can pay off a car loan early, you will need a solid financial plan to do so. We recommend meeting with a personal finance advisor or with a member of our team to help you find the best way to pay off your car loan debt. Is it good to pay off a car loan early? When you pay off your car loan you can take advantage of the following:

  • The overall interest paid
  • Becoming upside down on your loan
  • Lower debt-to-income ratio

Whether or not it’s a good idea to pay off a car loan early is up to your personal finances. However, if you are not in a place financially to do so, continuing to pay your monthly car loan on time and in full is your best option. Read below for more information on when it makes sense to pay off a car loan early and when it does not:

When Does Paying Off a Car Loan Early Makes Sense

When you finance a new or used vehicle at a Toms River dealership, you’re doing so because you – like many drivers – cannot afford the full vehicle amount upfront. Each month you make payments to pay back the loan you took out with an auto lender. Therefore, if one of the following has occurred, then you’re in a good position to pay off your car loan early:

  • Little to no other debt, which allows you to free up cash to pay off your loan.
  • You have savings you want to apply to your car loan.
  • You want to lower outgoing expenses to retire or grow your family.
  • Looking to improve your debt-to-income ratio.

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

While paying off a car loan is often seen as a good thing, it’s not your best option if it will put a strain on your finances. If paying off your car loan will result in any of the following, we recommend continuing to make your monthly payments in order to protect your other finances:

  • You have no extra money for emergencies.
  • You do not have a reasonable interest rate.
  • You are looking to build your credit or improve your credit score.
  • Some car loan agreements can have prepayment penalties. Thus, paying off your car loan early may not be beneficial for you.

How to Pay Off a Car Loan Early

Now that you know a little more about whether it’s good to pay off a car loan early, you can make an informed decision on whether it’s the best option for you. If you want to continue with the process to pay off your car loan early, this is how:

  • Make Bi-Weekly Payments: Clear this method with your lender first. Not all car loan lenders will allow bi-weekly payments. But if they do, divide your full monthly amount into two, and make that your payment every two weeks. You will make thirteen car payments instead of twelve for the year.
  • Round-Up Your Payment Each Month: Round your monthly payments to the nearest fifty dollars each time you make a payment.
  • Make One Lump Sum Extra Payment: To achieve the same interest savings as if you did round up your payment, pay a lump sum—a one-time extra payment that is a large amount towards your car loan every year.
  • Resist the Temptation of Skipping a Payment: Resist skipping a car loan if you can. Many lenders will allow you to skip a payment or two upon consent annually. The ability to skip a payment is meant for financial emergencies only. If you use the payment pass, you lengthen your loan term and acquire additional interest.
  • Refinance with a New Car Loan: If you make your monthly payments on time and have a good payment history after two years, you may be eligible to refinance your loan. Remember that you only want to refinance if you can get it at a lower interest rate than what you currently have. The decrease in an interest rate will lower your monthly payment. Use the additional money to pay off your loan early.

It may also be possible to combine some of these options to pay off your car loan quicker. Discuss your options with your Freehold lender or your dealership’s finance team to find the best option for paying off your car loan early.

Get More Finance Advice from Galaxy Toyota

Now that you know more about how to pay off your car loan early, read our other car buying tips for information like what comprehensive insurance covers and what to do after a car accident. You can also contact our team if you have any questions. We look forward to helping you keep your Toyota running on Eatontown roads for years to come!

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750 Route 36 East • Eatontown, NJ 07724

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