Can I Pay Off My Car Loan Early?

Couple sitting at sales desk at dealership
If Toronto drivers are wondering how to pay off a car loan early or if it’s good to pay off a car loan early, Mercedes-Benz Durham is here to help. Read on for answers, and if you remain unclear about anything in our guide, don’t hesitate to give our finance department a call at (905) 666-8805. Do you have questions about other automotive finance issues? Be sure to explore our site for more helpful guides on the advantages of leasing, the advantages of financing, extending your car lease, and more!

Is it Good to Pay Off a Car Loan Early?

That depends on a few factors. Read over the situations when paying off a car loan early makes sense and when it doesn’t.

When Paying Off a Car Loan Early Makes Sense

  • If Oshawa drivers don’t have many other debts, and you’d like to pay off your car loan to free up some extra money for other expenses.
  • If you have enough money saved up that making larger car payments won’t cut into your emergency fund.
  • You’re trying to cut down on monthly expenses to save for an even bigger financial goal.
  • You’re trying to improve your credit score by improving your debt-to-income ratio.

When Paying Off a Car Loan Early Isn’t the Best Option

  • You don’t have stable emergency funds.
  • If you have a low interest on a loan, it may be wiser to put the money you plan for a larger car payment into your retirement plan.
  • If you need to build credit history, it might be better to spend a longer time reliably paying off your loan.
  • If there’s a prepayment penalty stipulated in your loan contract.

How to Pay Off a Car Loan Early

Markham drivers wondering how to pay off a car loan early should simply follow these steps.

  • Make Bi-Weekly Payments – Get in touch with your lender to make sure there’s no prepayment penalty. Also, ask them if it’s ok for you to pursue the following repayment strategy: divide your monthly payment by two and then make that payment every two weeks. Since some months are shorter than others, you’ll end up paying a surplus and roughly hit 13 full payments a year rather than 12.
  • Round Up Your Payment Each Month – You can also simply round your monthly payment up to the nearest $50 each month.
  • Make One Extra Payment Each Year in One Lump Sum – You can also simply make an extra payment each year in one lump sum.
  • Refinance with a New Car Loan – Once you’ve made one or two years’ worth of on-time, in-full payments, you’re likely a good candidate for refinancing. To do this, you simply need to reach out to another lender and have them loan you the money to pay off your loan at a lower interest rate.

Get in Touch With Mercedes-Benz Durham to Pay Your Loan Off Early

Now that Markham drivers know that it’s a good idea to pay your loan off early and you know how to pay your loan off early, simply contact us to renegotiate the terms of your contract.

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