Are There Options for Early Car Loan Payoff?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - September 14, 2018

There are several ways to pay off a car loan early, as long as there are no penalties for early repayment in the loan agreement. No matter how it’s done, the sooner a loan is paid off, the more money borrowers save in interest charges.

Simple Ways to Accelerate Loan Payoff

Without making any changes to a loan, borrowers can save themselves money in interest charges by making payments above the required monthly amount.

One of the simplest ways to do this is by rounding up payments. For example, a $20,000, 72-month loan with a seven-percent interest rate results in a payment of approximately $340.98 a month. Rounding up that payment just $20.00 a month allows the loan to be paid off two months early, while saving you $1,830.69 in interest charges over the loan term.

Another way to reduce interest is to make bi-weekly half payments. To follow through on this, borrowers simply need to divide their monthly payment in half, and make a payment of that amount every two weeks. By making bi-weekly payments, a borrower ends up making one extra monthly payment each year. This method allows a loan to be paid off more quickly without feeling like extra money is coming out of pocket.

If the loan doesn’t include any early payment penalties (and simple interest loans like car loans don’t), then there’s no rule that says how much the borrower can pay above their minimum monthly payment. A great way to pay debts ahead of schedule is to pay more whenever you can. With a simple interest loan contract, interest is calculated on a daily basis, based on the loan balance. For help understanding how extra payments can help save money, use an online auto loan payoff calculator or amortization table.

Refinancing for Additional Options

If a borrower has kept the loan in good standing and improved their credit score, refinancing might also be an option – that is, replacing their existing loan with a new one. Typically, loans have to be in good standing for at least 18 months to qualify for refinancing.

If someone’s credit score has increased enough, they may be able to refinance at a lower interest rate. Even if a borrower’s situation has improved, but not enough to qualify for lower rates, an existing lender might still be willing to renegotiate the loan at this point, but this option varies by lender.

A Better Process for Finding Financing

If you’ve gotten to the point where you need to find financing for your next vehicle, CarsDirect wants to help. We work with a nationwide network of special finance dealers that have lending resources available to work with people in challenging credit situations. Let us put you on the path to the right dealership, simply fill out our online auto loan request form to get started!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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