What Are the Penalties for Paying Off a Car Loan Early?
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Spotting Prepayment Penalties
Percentage Penalties
Rule of 78s
Precomputed Loans
Potential Benefits of Paying Off a Car Loan Early
Saving on Interest
Improving Your Debt-to-Income Ratio
Freeing Up Cash
Avoiding Going Upside Down
Potential Disadvantages to Paying Off a Car Loan Early
Your Credit Score May Take a Hit
Opportunity Costs
Pros and Cons of Prepayment at a Glance
When to Consider Paying off an Auto Loan Early
You don’t have any high interest debts to tackle first. You already have an emergency fund saved. You know you’ll be seeking additional credit in the near future, such as applying for a mortgage, so you want to improve your DTI. The money you save on interest is more than the penalty (if there is one).
Options for Paying Off a Car Loan Early
The Takeaway
About the Author
Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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