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Paying Off a Car Loan Early

2019 Honda Accord Touring

Monroe-area drivers wondering how to pay off a car loan early are in luck. Whether you’re preparing for another big life event or you have your eye on a new Honda, the team at Middletown Honda is here to help. Even though the loan was established with a set payment amount when financing, easily adjust your payments by contacting our team. Before you do, follow along with our guide to see if it’s good to pay off your car loan early, and how you can go about it. 

Pros and Cons of Paying Off a Car Loan Early

Warwick drivers interested in how to pay off their car loan early should first consider their personal budget and meeting with a financial advisor to create a financial plan. With a plan, drivers have the chance to decrease these outcomes: 

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

Choosing to Pay Off a Loan Early

Shoppers choose to finance their car when they’re not able to pay the full amount upfront. Paying off a car loan early would be a good idea for drivers if these situations apply:

  • There is little to no debt, so any extra cash can go towards the loan.
  • Money from personal savings can be applied to the car loan. 
  • Drivers who want to lower expenses for a future retirement or family growth.
  • Drivers who are looking to manage their debt-to-income ratio. 

Those wondering, “Is it good to pay off a car loan early,” should consider their personal finances. Verify that putting more money towards the loan won’t dip into the emergency funds or hinder the current lifestyle. It’s good to pay off a car loan when there’s extra money to do it.

Avoid Paying Off a Loan Early

While getting ahead on a loan is a tempting option, it might not be the best idea for everyone. If these factors apply, paying off a car loan early isn’t the right option:

  • There is no extra money available in an emergency. 
  • The loanee is seeking to establish credit or grow their credit score. 
  • The terms of the loan have a prepayment penalty. Some drivers may end up paying more, so paying off the loan early wouldn’t be beneficial. 

Way to Pay Off a Car Loan Early

Goshen driver interested in how to pay off their car loan early have a couple of ways to go about it:

  • Bi-Weekly Payments: By making bi-weekly payments, the monthly payment is divided into two to be paid every two weeks. This means that instead of the yearly twelve payments, drivers would have thirteen payments for the year.This method should be verified with the lender first as not all lenders allow bi-weekly payments. 
  • Rounding-Up Payments Each Month: Every little bit counts. Consider rounding up monthly payments to the nearest fifty dollars to get ahead on the loan. 
  • Make a Large Lump Sum Payment: This method helps with interest savings similar to rounding-up payments, making a large, one-time payment puts an additional dent in the auto loan.
  • Be Sure to Not Skip a Payment: Be sure to stay on top of monthly payments. While some lenders do allow one or two skipped payments with prior consent, this option is typically for emergencies only. Skipping payments leads to extending the terms of the loan and increasing the loan interest. 
  • Refinance with a New Car Loan: Middletown drivers with a record of timely payments and a good loan history after two years may have the option of refinancing their loan. Loan refinancing is meant to be a benefit, so only choose a refinanced loan with a lower interest rate. The lower interest rate leads to a lower monthly payment, and the additional money save can be used towards paying off the loan early. 

Discover More Financing Options with Middletown Honda! 

Is it a good idea to pay off your car loan early? Contact the knowledgeable team in our finance center to discuss your loan options. If you’re interested in learning more financing options, take a look at our car buying tips.

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