Can I Pay Ahead on My Car Loan?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - January 6, 2021

Most auto lenders allow you to pay ahead on your car loan. Doing this can give you some buffer in your payment schedule, and save you money long term.

Paying Ahead on Your Auto Loan

While some lenders have prepayment penalties on their auto loans, it’s not so commonplace anymore. Most lenders allow their borrowers to pay ahead and complete their loans early.

If you recently got a windfall of cash, such as a tax refund, stimulus check, or bonus, and you’d like to pay ahead on your car loan, it wouldn’t hurt to look over your auto loan contract to make sure you won’t suffer prepayment penalties. As we said, it’s fallen out of practice for the most part, but it doesn’t hurt to double check.

Staying Ahead of Schedule

It’s actually a good idea to stay ahead of your monthly payment schedule, since it can give you a buffer. If you were to make two vehicle payments in one month, putting you one month ahead of schedule, and then continue paying once a month after that, it could help you out if an unexpected expense comes up.

If you were to have a medical expense or an extra expensive monthly expense throw off your budget, not having to make your car payment for one month could get you out of a pinch if you don’t have much of a savings.

Paying Faster Saves You Money

Most auto loans use a simple interest formula, which means you’re charged interest daily on the remaining balance of the loan. The quicker you pay off your car loan, the less you need to pay in interest charges.

A good way to avoid paying a lot of money in interest charges is by opting for the shortest loan term you can, but that’s not always possible. Some auto lenders restrict your loan term based on what you qualify for. But, just because you qualified for a long loan term doesn’t necessarily mean you have to stick to that schedule!

If you looked at your projected total interest charges and your jaw dropped, then consider paying ahead whenever you can comfortably afford it. Some borrowers do what’s called payment splitting, which involves paying half of the car payment at the beginning of the month, then paying the rest on or near the due date. By doing this, you’re not allowing as much interest charges to stack up between the split payments because you’re lowering the loan balance faster.

However you choose to pay ahead on your auto loan, it can help you complete the loan quicker and save you interest charges. Many borrowers with poor credit are concerned with interest charges, since a bad credit score often leads to a higher rate. But if your loan contract doesn’t contain prepayment penalties, you can work hard and pay ahead to lower the total cost of your car loan.

Need a Car Loan?

If you’re looking to complete your auto loan and get into another vehicle – or you simply need financing – then start the car buying process with us at CarsDirect. We’ve produced a nationwide network of dealerships that are signed up with subprime lenders that are equipped to assist borrowers in many different credit situations, including poor credit. Get started right now by filling out our free auto loan request form and we’ll look for a dealer in your local area.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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