Can I Pay Off My Car Loan Early?

Tiny car with coins and finance paperwork
 

Yes, you can! Whether you’re in West Bloomfield or Troy, you can learn how to pay off a car loan early thanks to the help from the financial experts at Mercedes-Benz of Bloomfield Hills. While your new or used Mercedes-Benz vehicle has a set auto loan, you can adjust your loan payment by contacting us. We’re answering your top questions like:

  • Is it good to pay off a car loan early?
  • How to pay off a car loan early?

Is it Good to Pay Off a Car Loan Early?

A good financial plan is essential if you’re interested in paying off your car loan early. This is why it’s best to speak with your financial advisor to discuss how you plan on paying off the auto loan balance. Doing this decreases the overall interest paid, lowers your debt-to-income ratio, and decreases becoming upside down on your loan.

When Paying Off Your Car Loan Early Makes Sense

Since most drivers finance their vehicle due to not being able to pay the entire amount upfront, there are a few times when paying off your car loan early would make sense:

  • You have little to no other debt, which allows you to pay off your loan.
  • You have a strong savings balance that you want to apply to your car loan.
  • You want to lower out-going expenses to retire or grow your family.
  • You want to improve your debt-to-income ratio.

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

While paying off your car loan early is an ideal situation for some, it’s not always the best option for others. Below are a few reasons when paying off the loan is not the best option: 

  • You have no extra money for emergencies.
  • You do not have a reasonable interest rate.
  • You are looking to build your credit or improve your credit score.
  • Some car loan agreements can have prepayment penalties.

How to Pay Off a Car Loan Early

If, after reviewing the recommendations, you would still like to pay off your loan early, follow the steps below:

  • Make Bi-Weekly Payments: Make sure that your lender is okay with this first. If they allow it, divide your monthly payment into two, and make that your payment every two weeks. 
  • Round-Up Your Payment Each Month: Round your monthly payments to the nearest fifty dollars each time you make a payment.
  • Make One Lump Sum Extra Payment: Pay a lump sum, which is a one-time extra payment, that is a large amount to put towards your car loan every year.
  • Resist the Temptation of Skipping a Payment: Skipping a payment may be tempting, but this should only be done in an emergency. If you use it, you lengthen your loan term and that acquires additional interest fees.
  • Refinance with a New Car Loan: With monthly on-time car payments and good credit history, you may be able to refinance your loan. This should only be done if you can get a lower interest rate than what you have. This extra money can be put towards your payment.

You may be able to combine some of these options. It’s best to discuss your options with our finance team about paying off your car loan early. 

Get More Finance Tips Near Birmingham!

At Mercedes-Benz of Bloomfield Hills, we’re here to answer any questions you have about paying off your car loan early and additional finance tips like obtaining auto financing with bad credit, whether you should lease or finance your next vehicle, or ways to improve your credit score. Give us a call if you have any questions.

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