Should I Pay Off My Car Loan Early?

If you come into some extra money, or you get a new job with a nice pay increase, you might consider paying off your car loan early. Although it’s tempting, it’s important to manage your money and weigh the pros and cons before you jump right into paying it off. In this blog we’ll talk about the benefits and disadvantages of paying your car loan off early.

Benefits

There are several benefits to paying off your car early. Let’s take a look at a few of them:

You’ll Own Your Car Outright

If you’ve been financing your car, you don’t technically own it fully yet. But once you pay off that balance, the car becomes yours. Owning it outright is especially beneficial if you’re looking to sell your car or trade it in.

You Can Save Money Depending on Your Interest

If you have a simple interest loan, you can save a lot of money by paying off your car loan. Simple interest loans charge interest on a monthly basis, based on your current unpaid balance. However, you won’t get this same benefit if you have a precomputed interest loan. These types of loans calculate a certain amount of interest at the beginning of the loan and it’s unaffected by how much you pay off.

Disadvantages

Even though paying off your car might seem like a no-brainer, sometimes there can be downsides. Here are couples that you might come across:

Prepayment Penalties

Before paying your car off early, you should check and see if your lender set up prepayment penalties. If they did, you might have to pay these penalties if you pay your car off sooner than the term of the loan.

You’re Spending a Large Amount of Money at Once

If you receive something like a tax refund, it could be tempting to spend that check on your car loan. But you should look at your finances and see if it’s a better idea to have that cash on hand and just keep making your normal payments. In the end, how you manage your money is up to you, but it never hurts to have some extra cash on hand.

Manage Your Money with a Finance App

If you need help figuring out how to manage your money, there are plenty of options out there. One app in particular, called Cleo, is extremely good at making money management simple and convienent.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years’ experience in business finance. You can find his thoughts at money management blog. Check out this website to learn how to save money.

About This Author

Daniel Stewart Joined: September 22nd, 2018