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How to Pay Off a Car Loan Early

Paying off your car loan early has one big advantage - hundreds of dollars saved in interest charges. Therefore it is worth considering what your options depending on your personal financial situation are to pay off your car loan earlier.

Here is what you can do:

  • Switch to a bi-weekly payment plan.
  • Apply an additional amount to your principal balance.
  • Use money from your savings to pay off the loan.

If you choose the first option (a bi-weekly payment plan) you will be able to save money on interest. Instead of your regular monthly payment you will be making half a monthly payment every two weeks. This will result in one additional 13th monthly payment at the end of the year. Thus you will pay off your loan earlier.

You can use our Bi-weekly Car Loan Calculator in order to calculate how much money you can save if you choose this payment plan.

If you choose the second option you will be making additional payments towards your car loan. Examine your monthly budget and see how much more you can allocate in order to make larger payments on your car loan.

Be careful when choosing the third option and carefully weigh the pros and cons of using your available liquid assets to cover your car loan debt.

Whatever way of early car loan pay off you choose always review your loan paperwork to see whether you will be imposed any early pay off penalties.

Additionally, examine your loan documents to see whether your car loan is a simple interest or a precomputed interest loan. If your loan is a simple interest one, paying it off early will save you money. If it is a precomputed interest loan, then you will not save any money in interest since it has been added to your loan at origination.

Finally, once you pay off your car loan early, wait for you lender to send you the title to your car. Keep it in a safe place since this is the proof of your car ownership.

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