10 Easy Tips for Paying Off a Car Loan Faster
Share this article:
Editor’s note: At Lantern, we strive to help you make financial decisions with confidence. To do this, we occasionally feature content that includes information about our partners and their products or services. We do not provide, endorse, or guarantee any third-party product, service, information or recommendations—and our opinions are our own.
Pros and Cons of Paying Off a Car Loan Early
Paying less in interest over the life of the loan. For many, saving on interest payments is a major benefit of settling auto debt. Improving debt-to-income ratio. Getting out from under a car loan can lower your debt-to-income ratio—a metric lenders use to determine how much you can afford to borrow. That could be an asset if you’re looking to apply for a mortgage or other financing. Avoiding going upside down on your loan. If you have a high interest rate and lengthy repayment term, you could end up eventually owing more on the vehicle than it’s worth—a scenario known as an upside down auto loan. Paying your loan ahead of schedule could help you avoid this risk.
Potential penalties. You could face a prepayment penalty for paying off your loan before its term. Be sure to check your loan contract or speak with the lender to see if you might be subject to such a fee. If so, you may want to compare the penalty fee with the overall savings of paying off the loan early so you can determine whether it’s worth it. May not be the best use of your funds. Prepaying may take up money that you could have used for paying off higher-interest debt first. Can impact your credit score. Paying off your loan could result in a temporary drop in your credit score since it reduces the diversity of your overall credit mix.
10 Tips to Pay Off a Car Loan Faster
1. Review Your Loan Terms
2. Never Skip Payments
3. Round Up Your Car Loan Payment
4. Snowball Your Debt Payments
5. Make Biweekly Loan Payments
6. Put Unexpected Income Toward a Partial Lump Sum Payment
7. Cancel Unnecessary Auto Services and Warranties
8. Reduce Extra Expenses
9. Earn Additional Income
10. Transfer the Loan to Someone Else
About the Author
Share this article: