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Is It Good to Pay Off a Car Loan Early?

Is paying off a car loan early possible? Yes. Is it good to pay off a car loan early? That depends on your needs and financial situation. While paying off your loan can provide you with tons of benefits for Los Angeles drivers, there are also drawbacks that you’ll have to factor in while making your decision. In this guide, we’ll walk you through the pros and cons of pay off a car loan early.

Considerations for Paying Off a Car Loan Early

If you have the money to spare, paying off a car loan early can help you eliminate debts sooner and free up funding for the future. But there are risks to consider as well, which is why it’s important to talk to a great financial advisor. Here are some of the outcomes of paying off a car loan early:

  • The overall interest paid
  • Becoming upside down on your loan
  • Lower debt-to-income ratio

When You Should Pay Off Your Loan Early

Before you make any decisions in Carson, you need to consider whether or not the extra payments will impede on your current finances or your emergency funds. Here are some scenarios where it makes sense to go ahead with the process:

  • You currently have little to no debt, so you have extra money to spare.
  • You want to lower your outgoing expenses to make room for retirement or a growing family.
  • You want to improve your debt-to-income ratio.

When You Shouldn’t Pay Off Your Loan Early

Sometimes it’s better to continue paying your loan as scheduled, rather than make any drastic financial decisions. Here are some scenarios where it pays to wait it out.

  • You have no emergency fund.
  • You want to build your credit.
  • You have prepayment penalties for paying off your loan early.

How to Pay Off a Car Loan Early

If you’ve decided to go ahead with the process, here are some tips and tricks for how to pay off a car loan early:

  • Bi-Weekly Payments: If your lender allows bi-weekly payments, divide your full monthly amounts into two – and pay that much every two weeks. This allows you to make an extra car payment every year.
  • Round Up: Round up your payments to the nearest $50 or any other amount that fits within your budget.
  • Lump Sum: Pay a large extra payment in a lump sum to get ahead of your payment plan.
  • Refinance: If you have good financial standing, you can consider refinancing after two years to get a better interest rate.

Find Out More with Kia of Cerritos

For expert financial advice on how to pay off a car loan early, we welcome you to contact us at Kia of Cerritos. We’re located in Cerritos, just a short drive from Orange County, and we’d be happy to help you find the solutions that are right for you.

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