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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
Car Loans Canada
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.
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:
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.
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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