Can I Pay Off My Car Loan Early?

If you choose to finance your new or used car, you’ll have a set monthly payment you’ll need to make in order to repay the loan. If you’re the type of person who doesn’t like owing money, you might be wondering, “Is it good to pay off a car loan early?” It can be, assuming you won’t incur any penalties. In the following guide, we’ll cover the following topics: 

• When paying off a car loan makes sense
• When it’s better to avoid paying a car loan off early 

Is it Good to Pay Off a Car Loan Early?

Paying off a car loan early takes a good bit of financial planning, however, paying your loan off ahead of schedule means you’ll pay lower interest, a lower debt-to-income ratio, and you won’t have to worry about becoming upside down on your loan. If you want to pay your loan off early, be sure to consider the following: 

Paying Off a Car Loan Early: When it’s a Good Idea 

• Your debts are minimal overall, and you’d like to free up your money again as quickly as possible. 
• The interest rate isn’t great. (In this case, you could also consider refinancing.) 
• You have substantial savings, or you have enough room in your budget that you can afford to make larger monthly car payments. 
• You want to lower your monthly expenses to make room in your budget for a big life event, such as a wedding or planning for retirement. 
• You want to improve your debt-to-income ratio.

Paying Off a Car Loan Early: When it’s Not the Best Idea 

• You don’t have savings for emergencies. 
• If your interest rate is good, it may be smarter to continue making payments as usual. The money you’d put toward your loan could instead go toward a mortgage, a retirement fund, etc. 
• You’re building your credit score by making regular payments. 
• Some car loan agreements include prepayment penalties. So, double-check with your lender that early repayment is even a possibility for you. 

Get More Financing Tips from BMW of West St Louis! 

Bottom line: Is it good to pay off a car loan early? Yes, for many, early car loan repayment is beneficial. However, there are circumstances where it’s better to continue making on-time payments at the agreed-upon amount. To learn more about topics related to financing, insurance, etc., refer to our car buying tips hub. You can also get in touch with our friendly finance team online or at (636) 227-5454!