You can pay off your car loan quickly but verify your finances first to see whether there’s a charge for pre-paying your loan. Many people pay off their car loans by taking out a short-term car loan and paying only the interest while the loan is unpaid. The advantage of this strategy is that you usually have a lot more cash on hand to make larger purchases. The disadvantage is that you’re paying interest while your vehicle sits idle and you don’t get the total value of your vehicle when you pay it off.
If you’re trying to decide if you should pay off your car loan earlier or wait until the end of your loan, you’ve likely noticed that the monthly payments are higher than normal. Should you pay off your loan sooner? The answer depends on several factors. First, some people will get a larger tax break when they pay off their car loans early because the penalties for early payment are much lower than they would be for paying off a new loan, plus the money that is saved during the interest-rate run-off period is usually more than enough to cover the new loan costs.
Another reason to pay your loan early is to save money. You can easily save money by paying off your existing debt faster than you can on new auto debt. Many people find that the amount they spend on monthly payments is higher than the actual amount they earn per month. Paying off your existing car loan sooner allows you to take advantage of those higher residual payments and save money on both ends of the spectrum.
A third advantage to paying off your loan quicker is that you’ll have less debt. Less debt typically equates to a higher credit score. Having less debt is usually very good for your credit score because it shows that you are responsible with your money and that you are not looking to put yourself into financial difficulty. This is a positive on your part and it helps you get that loan you want or get another new car. In the long run, having less debt also means that you’ll have more time to save and put more money away into savings. This is also a positive on your credit score, which helps you get the loans you want and get the best deals.
Finally, the most common reason why people don’t pay their car loans off faster is that they are afraid of losing their cars and driving up their credit scores. If you are thinking about filing bankruptcy because you can’t afford your monthly payments, think again. Bankruptcy has far reaching negative consequences that you will regret for the rest of your life. If you are thinking about a loan workout, consider the benefits of doing it yourself instead of through a third party company. While you won’t get as high of a credit score because you did it yourself, you will be able to save money and keep your vehicle.
So if you are struggling to pay off your car loan, consider one of these alternatives. It might make sense in the short term but in the long run you’ll be glad you took control of your debt. By working with a professional, you can eliminate all of your debts without damaging your credit scores. You might even be able to work out a reasonable monthly payment that you can easily afford.