How To Pay Off a Car Loan Faster
Greenwich drivers sometimes ask the finance team at Mercedes-Benz of Greenwich about paying off a car loan early. Is it good to pay off a car loan early? Learn when paying off a car loan early is a good idea and how to pay off a car loan faster below, and if you have questions, contact us. We’re here for you!
Is it Good to Pay Off a Car Loan Early?
It takes good planning and diligence to pay off a car loan early, but if you do, you’ll pay less interest and decrease the chances of getting upside down on your auto loan. Plus, you’ll have a lower debt-to-income ratio and get one step closer to financial freedom.
When Paying Off a Car Loan Early Makes Sense
So, is it good to pay off a car loan early? Keep reading to find out when paying off a car loan early is wise.
- If you have a few other debts and would like to get your car loan paid off early to free up money for other financial priorities.
- You want to lower your monthly expenses because you’re planning for another larger financial goal like retiring early or buying a home in Rye or Stamford.
- If you have enough money in your savings that making larger monthly car payments won’t negatively affect your emergency reserves and other finances.
- If you want to improve your debt-to-income ratio.
When Paying Off a Car Loan Early Might Not Be Wise
- If you don’t have much in savings for emergencies it may not be wise to pay it off early. Strive for at least six months of income in your savings account.
- If you have a fantastic interest rate, it may be best to continue with making your regular on-time payments because the money you’d use to pay your loan off early could be used for something else, such as your retirement fund or saving for a down payment on a home.
- If you need to improve your credit score.
- If your auto loan includes prepayment penalties. Check your loan documents, and if this is the case, you should probably just keep to your regularly scheduled payment amount.
How to Pay Off a Car Loan Early
There are a few ways of paying off your car loan early. Take a look below to determine which route makes the most sense for your New Canaan budget.
- Make Bi-Weekly Payments – First, ask your lender if it’s okay to use this method. If so, divide your monthly car payment by two and make that payment amount every two weeks. Using this method, you’ll make 13 payments per year rather than 12.
- Round Up Your Payment Each Month – Each time you make a monthly payment, round it up to the nearest $50 or $100.
- Once Per Year Make an Extra Payment in One Lump Sum – Some Greenwich drivers make one large extra payment per year using their tax refund or profit share bonus.
- Never Skip a Payment, Even if Your Lender Says You Can– Believe it or not, some auto lenders allow you to skip a couple of car loan payments per year. They may even encourage it during the holidays. As tempting as it is, it will only lengthen your auto loan term and make you pay more interest.
- Refinance with a New Car Loan – If you’ve made one or two years’ worth of on-time, full car payments, you might be a good candidate for refinancing your loan, but only do it if you can get a lower interest rate. The lower interest rate will lower your monthly payment and make it easier to pay extra each month and pay off your loan early.
Learn More About Auto Financing with Mercedes-Benz of Greenwich!
Now that you know if it’s good to pay off a car loan early and how to pay off a car loan faster, why not finance your next vehicle through Mercedes-Benz of Greenwich? We take all the hassle out of financing a car, and you can even apply for financing online! We’re here to answer your questions, from how to lease a car to how to improve your credit. So don’t wait. Get started today!
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