If you have a low-interest car loan and carry other debt, paying off your car loan early probably is not an immediate priority. On the other hand, if it is a priority and you have the means to pay your car loan early, it could save you money, free up disposable income, improve your debt-to-income ratio, and give you clear title to your car in no time. Before you make the move, check the terms of your contract to make sure you won’t incur any early payment penalties. Below are a few options for you to consider:
1. Refinance Your Car Loan
Why would you want to trade one loan for another? While refinancing your loan may not initially seem like the best option to pay off your loan, the important factor to consider is whether a new loan may save you money or reduce your monthly payments. Particularly with the average term length of a car loan at six years, it’s easy to imagine being a year or two into the term of your loan when your circumstances change. Maybe your credit score improved and you’re now able to negotiate a better interest rate. You can use an auto loan calculator to see what your new potential payments could be with a lower rate. Be sure to factor in any finance costs to determine if refinancing is the right move for you, and carefully read all the fine print on your loan documents to ensure there are no fees for extended warranties or service contracts you no longer want or need.
2. Double up on Your Payments
If you can afford to, consider paying more on your monthly payments where the additional payment applies to the principal only. For example, if your monthly payment is $325.00, make your payment as you normally would. Then, make another payment but request and confirm that the lender will apply the second payment to the principal. The extra payments may reduce the length of your loan and potentially the total interest on the loan. You will want to make sure prior to making additional monthly payments that there are no early payment penalties.
3. Apply Tax Refunds and Bonuses to Your Auto Loan
Tax refunds, bonuses, and monetary gifts are all funds you may not have planned on. Instead of using the money toward items you may not need, consider putting it toward your car payment. If you receive a raise, consider applying the extra income toward your car payment. You will want the additional money to be applied to the principal only and to make sure there are no penalties against early payments.
Whether you’re looking for a new or used car loan, or if you want to refinance an existing car note, Mariner Finance may be able to help. Locate a branch near you to apply for a car loan with no prepayment penalties.