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How to pay off a car loan early

Strategies to save on interest and get out of debt faster.

When you’re in a financial situation that allows you to pay off your car loan early, you might be able to save big on interest. But that’s not always the case. There are a few of factors to consider before you jump in.

Should I pay off my car loan early?

You might want to consider paying off your car loan early if you’re interested in saving on interest or getting out of debt quicker. There are three main situations where you can benefit the most from repaying early:

  • There’s no prepayment penalty. Some lenders charge a prepayment penalty to make sure they don’t lose the interest you would have paid. You often can’t save if there’s a prepayment penalty.
  • Interest isn’t precomputed. Some lenders front-load the interest charge, meaning you’ll pay the same amount no matter how quickly you pay off your loan.
  • You don’t have higher-interest debts. If interest rates are adding up more rapidly on another comparably sized debt, focus on prepaying that first.

Can I pay off a car loan early?

You can, though how it works depends on your lender. You can either make multiple additional repayments toward your loan. Or you can make a large one-time repayment to pay it off all at once. Reach out to your lender’s customer service department to learn about your options.

How prepayment works for 9 providers

Loan providerCan you repay loan early without penalty?Fees that apply for early repayment
Auto Credit ExpressVaries by lenderVaries by lender
Go to site
car.Loan.comVaries by lenderVaries by lender
Go to site
Go to site
LendingTreeVaries by lenderVaries by lender
CarsDirectVaries by lenderVaries by lenderRead review
SpringboardautoYesNoneRead review
Bluesky Auto FinanceNot statedNot statedRead review
RoadLoansYesNoneRead review
CarFinance.comYesNoneRead review

How much can I save by repaying my loan early?

How much you can save depends on several factors, including how much time you have left on your term, your loan balance and your interest rate. Use our car loans calculator to learn the difference between repaying your loan according to your current term and paying it off early — if you have no prepayment penalties.

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.

Repaying fixed- vs. variable-rate loans

Your options might vary depending on the type of interest rate you have.

  • 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 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.

How can I pay off a car loan early?

You have a few different option to choose from when you want to pay off your car loan balance early:

  1. Refinance your loan. If you find yourself in a better financial position with a strong credit score, you could refinance your car loan to get a shorter term with better rates, paying off your debt in a fraction of the time.
  2. 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.
  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 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 loan early.
  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 and put it toward your car loan.
  6. 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 than taking up space in your home.
  7. 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.

What else should I know about car loan payments?

Your car loan terms will affect how you make repayments, so examine them carefully, including:

Watch out for the Rule of 78s

Some lenders, particularly from buy-here-pay-here lenders, offer loans with a precomputed interest rate using what is known as the Rule of 78s formula. These loans front-load interest so that borrowers pay around two-thirds of their loan’s interest in the first few months.

In some states, it’s illegal to use the Rule of 78s to calculate interest on car loans with a term of five years or less, including:

  • Arizona
  • Delaware
  • Idaho
  • Iowa
  • Kansas
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Nebraska
  • Nevada
  • New Hampshire
  • New York
  • Oregon
  • South Dakota
  • Vermont

Compare car loans and get a quote today

Name Product Filter Values Minimum credit score APR Loan term Requirements
PenFed Auto Loans
Starting at 1.79%
3 to 7 years
Active membership with PenFed
Low APR car loans from a well-known credit union.
No minimum credit score
3.9% to 27.9%
18+ years old, annual income of $4,000+, no active bankruptcies
Get pre-qualified for used car financing and receive competitive, personalized rates. Car Loans
Varies by network lender
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
CarsDirect auto loans
No minimum credit score
Varies by network lender
Varies by network lender
Must provide proof of income, proof of residence, and proof of insurance.
Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.
Auto Credit Express Car Loans
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
Get connected with an auto lender near you, even if you have bad credit.
Monevo Auto Loans
3.99% to 35.99%
3 months to 12 years
Credit score of 500+, legal US resident and ages 18+.
Quickly compare multiple online lenders with competitive rates depending on your credit.
Good to excellent credit
Starting at 0.99%
Varies by lender
18+ years old, good to excellent credit, US citizen
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out. Car Loans
Starting at 1.89%
550+ credit score, no open bankruptcies, $24,000+ annual income, US citizen or permanent resident, 18+ years old
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.

Compare up to 4 providers

Bottom line

Making additional payments on your car loan 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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