Paying Off a Car Loan Early: Know the Pros and Cons
Anyone searching ‘paying off car loan early’ will quickly find that this is an option, but is it good to pay off a car loan early? That’s a different matter entirely, and the answer really revolves around your own circumstances more than a straightforward ‘yes/no’ response.
With that in mind, our finance team put together a quick look at the advantages and disadvantages of paying off a car loan early. Read on for help deciding if it’s the right option for you.
Why Should You Pay Off a Car Loan Early?
Six years is the average car loan length. Get that bill out of the way fast and you’ll be covering the roads of Boerne and New Braunfels without any monthly payments. Here are just a few benefits that come with learning how to pay off a car loan early:
- Less Interest: Interest always makes up part of your monthly payments. You can’t avoid it entirely, but you can end up paying considerably less by paying off the bill as soon as possible.
- Lower Debt-To-Income Ratio: If you’re planning another big investment, such as a mortgage, it helps to lower your debt-to-income ratio before applying.
- Free Up Cash: Paying off a loan early is a great way to free up more money for retirement or other expenses.
Why Shouldn’t You Pay Off a Car Loan Early?
The aforementioned advantages might seem compelling, but there’s still a few drawbacks to paying off a car loan early that San Antonio drivers should keep in mind, including:
- Higher Monthly Costs: If you shorten your loan term, you’ll need to pay more each month, so you’ll need to make sure that the higher payments won’t leave you strapped for funds in other areas of your budget.
- Possible Prepayment Penalties: Some auto loans charge you for early payments, so you need to work out what those charges will amount to before deciding if this is the right move.
- Refinancing Options: If your credit has improved, refinancing might be a better option than paying off your car loan early.
- Paying Off a Car Loan Early Doesn’t Build Credit: Paying off a car loan early certainly won’t hurt your credit; but on the other side of that coin, no longer making on-time, in-full car payments means you’re not building on your credit either if that is your goal.
Learn More with Northside Ford!
Northside Ford is here to assist you in all things car financing. Whether you want to talk about the latest Ford F-150 trucks or discuss Ford Credit loan options compared to lease options, our friendly associates are here for you at every step! For any further assistance, simply get in touch today.