If you have extra funds to pay off your car loan early, it is always a great idea to do so. Why? There are several benefits including freeing up your budget for other expenses, and helping you save money on interest payments.
This is one of the most important benefits to paying off your car loan early! Many car loans can be as much as $500 a month or more. Once your loan is paid off, you can use this extra money to pay down credit card debt, reduce the principal on other personal loans, or even enjoy a weekend escape now and again. Having this extra money available can give you the financial breathing room you need to pay down debt or enjoy your life a little more.
Save Money on Interest Payments
Paying your auto loan off early will help you avoid paying interest charges; this is especially true if you initially only qualified for a bad credit auto loan. Few of us stop to think how much a car loan really costs. Your monthly interest charges are determined by how much you still have left to pay on your loan principal. The faster you make your payments, the less principal you will owe – and the less you will pay in interest charges. Over the life of a car loan, you can potentially save hundreds or even thousands of dollars in interest costs by paying off your loan early.
Avoid Financial Disaster
Paying off your loan early will help you avoid financial disaster if your car is totaled. No one wants to think about being involved in an accident or having their car stolen or vandalized. Unfortunately, when this happens, most people are faced with another surprise – the insurance company only pays the current market value of the vehicle. In many cases, particularly if the car is relatively new, this amount is less than the remaining principal amount of the loan. This means that you still owe money on a car that you no longer own. This financial burden can make it difficult to buy a new vehicle, so it is a good idea to pay down your loan as quickly as possible.
Paying off your loan early will allow you to trade in your car more quickly. One of the nicest benefits to paying off your car loan early is that you can trade in your car for a newer model sooner. Because cars depreciate in value over time, the sooner you pay off your loan, the higher the trade-in value of your current vehicle will be. This means that you will pay less for your new vehicle, so you can pay it off sooner as well.
Paying a car loan off early requires focus and discipline; however, the benefits to paying your car loan off early are well worth the effort. You can increase your credit score, save on interest charges, trade in your vehicles more frequently and receiving the best financing options, and even have more money left over for your other monthly expenses.