Strategies you can use to save on your next car loan.
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Can I pay off a car loan early?
It depends on your lender, but generally you can pay off your car loan early. Paying off your car loan early can cut down on the total cost of your loan because it gives less time for interest to add up.
However, some car loans come with precomputed interest, which means you’ll pay the same amount no matter how much time you take to repay your loan. In these cases, paying off your car loan early can only get you out of debt faster.
7 strategies to pay off a car loan early
- Refinance your loan. If you find yourself in a better financial position, with a strong credit score, you could refinance your loan to get a shorter term with better rates, paying off your debt in a fraction of the time.
- Make additional payments. If allowed, try to make additional payments whenever possible. Making payments every other week adds one extra payment at the end of the year, helping you save on interest.
- Make lump sum payments. Try to make a few large payments per year when you get extra cash from a bonus, tax refund or pay raise.
- 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.
- 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 and put it towards your car loan.
- Sell your stuff. Make a list of personal items that you haven’t used in a long time and determine if you need them anymore. You may find that they’d be better as cash in your hand then taking up space in your home.
- Don’t skip payments. Even if you don’t owe any interest right now and don’t need to make a payment it’ll still add up and could cost you more money.
Which lenders let me pay off my car loan early?
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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 it at all.
If you can make extra payments or pay your loan off early, there are two different approaches:
- Repaying a variable-rate loan. Lenders generally place fewer restrictions on car loans with variable interest rates. Since lenders generally don’t lose much money from early repayment, 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.
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.