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Can you pay off your car loan early?

Strategies you can use to save on your next car loan.

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When your financial circumstances allow you to pay off your car loan early, you might be able to save some serious money on interest. But that’s not always the case. There are a few of factors to consider before you dive into an early repayment scheme.

Car Loans Canada

  • Min. Loan Amount: $7,500
  • Max. Loan Amount: $55,000
  • Interest Rate: 3.99% to 29.95%
  • Loan Term: 12-84 months
  • $0 down options available
  • All credit scores considered
  • Quick and simple financing
  • Safe and secure loans

Car Loans Canada

Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.

  • Min. Loan Amount: $7,500
  • Max. Loan Amount: $55,000
  • Interest Rate: 3.99% to 29.95%
  • Loan Term: 12-84 months
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Can I pay off my car loan early?

It depends on your lender, but usually you’re allowed to pay off your car loan early. Doing this can cut down on the total cost of your car, because there’s less time for interest to compound on your loan.

However, some car loans are calculated with pre-computed interest, which means you pay the same amount of interest if you discharge the loan early as you would’ve paid had you stuck with the original loan term.

Loans with pre-computed interest ensure that lenders get their full interest payment, regardless of how soon you choose to pay off your loan. In these cases, early repayment can only get you out of debt faster, but it won’t cut down on the cost of your car.

7 strategies for paying off your car loan early

  1. Refinance your loan. If you find yourself in a better financial position than when you bought your car, and you have a strong credit score, you could refinance your loan to get a shorter term with a better rate, which will help you to pay off your debt faster.
  2. Make additional payments. If allowed, try to make additional payments whenever possible. Making payments every other week, as opposed to twice a month, adds two extra payments per year (you’d make 26 payments instead of 24), which will help you save on interest.
  3. Make lump sum payments. Try to make a few large payments per year when you get extra cash from a bonus, tax refund or a pay raise.
  4. Get a side gig. Working a few extra hours on the side can help you save up the cash you need to pay off your car early. Even small savings can really add up.
  5. Renegotiate your car insurance. There could be additional savings if you start comparing other car insurance options, especially if you have a record of good driving. Then just apply the money you save to your car loan.
  6. Sell your junk. Make a list of personal items that you haven’t used in a long time and decide if you really need them anymore. You may find that they’re better used as cash in your pocket than as junk items taking up space in your home.
  7. Don’t skip payments. Even if, according to the terms of your loan, you don’t owe any interest right now and don’t have to make a payment, never skip one! Missing one of your scheduled payments will delay the repayment of your loan and may cost you more money in the long run.

Compare car loans today

Name Product Min. Loan Amount Interest Rate Loan Term Min. Credit Score Requirements
CarsFast Car Loans
$500
4.90% to 29.90%
12 months - 8 years
300
Gross income of $1,800/month, 3+ months employed
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online to purchase a new or used vehicle and get the vehicle delivered to your door.
Loans Canada Car Loans
$500
0% to 29.99%
3-96 months
300
Employed for at least 3 months, min. income of $1,800/month
Get access to financing from multiple lenders across Canada through a single application with Loans Canada. Bad credit, CERB and EI borrowers are considered.
Car Loans Canada
$7,500
3.99% to 29.95%
12-84 months
300
3+ months employed, min. income of $2,000/month
Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
Canada Auto Finance
$500
3.00%-29.95%
3-96 months
300
3+ months employed, min. income of $1,500/month
Canada Auto Finance is a broker that connects borrowers with partnered local lenders. Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.
Carloans411 Car Loans
$500
1.90% to 19.99%
Up to 72 months
300
Employed for 3+ months, min. income of $1,600/month
Get connected with suitable lenders through CarLoans411. Finance your next car, van or truck with loans available in amounts from $500 to $50,000. Check eligibility for this loan through LoanConnect.
LoanConnect Car Loans
$500
10.00% to 46.96%
6-60 months
550
No min. income requirement
Get access to 25+ lenders through LoanConnect's brokerage. Receive pre-approval in as fast as 60 seconds and get your funds in as little as 24 hours.
Fairstone Secured Personal Loan
$5,000
19.99% to 23.99%
3-10 years
560
Have an established credit history and own your home
Fairstone offers secured personal loans up to $35,000.
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How do early repayments work?

Before you take out a car loan, check with the lender to see what penalties or fees it charges for early repayment. Many car loans use your car as collateral and come with a fixed interest rate. In this case, lenders might place restrictions or fees on early repayments or won’t allow you to repay the loan early at all, because they would otherwise lose money on interest payments.

There are two different approaches to making extra payments or paying your loan off early:

  • Repaying a variable-rate loan. Lenders generally place fewer restrictions on car loans with variable interest rates. Since lenders generally don’t lose as much money from early repayment with variable rate loans (as opposed to fixed rate loans), you likely won’t have to worry about early termination fees.
  • Repaying a fixed-rate loan. Repaying your entire loan involves paying whatever the loan balance is due to the lender during a fixed-rate period. Here you’ll likely pay termination and administration fees that the lender uses to cover its lost interest.

What else should I know about car loan payments?

Your car loan payments will affect how you deal with your loan, so examine them carefully. Before you send a new loan application, make sure you’ve considered the following factors.

Bottom line

Making additional payments on your loan can be a helpful option that can help you save down the road, but it’s not the only feature that lenders have to offer — and it’s not always guaranteed to save you money. Remember to compare car loans, taking into consideration fees, features and rates to find the right one for you.

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