Should You Pay Off Your Auto Loan Early?

Paying off your auto loan early may sound appealing, but weighing the pros and cons before making the big decision is essential. Whether you just came into a sum of money or have a little extra cash, you may consider paying off your auto loan early. But is it a good idea? Keep reading to discover some of the benefits and drawbacks of paying off your auto loan early. Then, feel free to contact us if you have any questions!

Benefits of Paying Off Your Auto Loan Early

Save on Interest

Paying off your loan early will allow you to save on months of interest payments. This will save you more in the long run as lenders will have less time to collect these extra interest charges from you.

Have Extra Cash for Other Expenses

Completing your auto payments early will allow you to put these funds towards other loans or expenses. For example, you can put these monthly payments towards your mortgage, student loans, or an emergency savings account.

Take Ownership of Your Vehicle Sooner

Once you finish paying off your loans, you finally own the vehicle you have been making monthly payments towards. Paying off your loan early will give you the freedom to sell, adjust your insurance rates, or trade it in without the lender’s restraints.

What to Consider When Paying Off Your Auto Loan Early

Prepayment Penalties

Some lenders charge a payoff penalty. Review your loan contract to see if your lender charges a fee for paying off your loan early. If they do, you should determine if this amount is more than what you would save on interest and decide from there.

Lose Chance to Build Credit Score

On-time regular monthly payments build your credit score. Paying off your loans early will not affect your credit, but if you want better credit, then keeping your auto loan and paying it off on time is an excellent way to do it.

You Might Have Higher Priorities

Many people have various payments that may take priority over their auto loan. If you secured a low-interest plan for your auto loan, it might be better to focus on paying off higher-interest loans such as a mortgage, credit line, or student loans.