As straightforward as car loans are, it can be tricky when it comes to deciding whether or not you should pay off your car loan early. Depending on your situation, you might feel like it’s a good idea to hold onto whatever extra money you have and simply keep making the minimum payments. While, on the other hand, it might actually be better for you to pay the loan off early. Let’s take a closer look at paying it off early.
Paying off your car loan will free up your money for other expenses
The most obvious reason that you would want to pay off your car loan early is so that you can free up the money that you would normally spend on the car loan and use it toward other expenses or keep it in the bank. Of course, this is a great idea financially, however, it also means that you’ll be spending a large sum of money to pay it off, which you might actually need in the interim, so it could be a good idea to figure out if you would rather have more money now or more money later.
Paying off your car loan will help you avoid owing more than the car is worth
If you currently have a loan on your car and you didn’t put a large down payment, to begin with, then it’s possible that you owe more to your bank than what the car is actually worth. If that’s the case, then making larger payments every month, or paying the rest of the loan off in a lump sum, will help you avoid owing more than the car is worth, or being “upside down.” Being upside down on a car loan could mean that in the event of a “total loss,” or a bad car accident, you might end up having to pay off the rest of the loan to the bank unless you have GAP insurance.
How to pay off your car loan earlier
If you finally decide that paying your car loan off early, as opposed to continuing to make the minimum payments, is the right thing to do in your current financial situation, then you have a couple of options. You can call your lending company, or bank, and ask them what the “payoff amount” is, or the remaining amount that you owe, and then completely pay it off in one lump sum.
If it’s not feasible for you to pay off the whole amount right away, then you can always just pay the loan down faster by making extra payments in the month or simply paying more than the minimum monthly payment.
RELATED: Is GAP Insurance Worth Buying?
Either way, just remember to pay
The great comedian Steven Wright once said, “If you think nobody cares about you, try missing a couple of payments.” Whether you can pay your car loan down quickly or not, just remember to make the payments, it will get paid off eventually. But if you do have the means, then we advise that it might be better to at least pay a little more every month in order to shorten the duration of the loan and save money on interest.