If you have monthly car payments you understand the need to get rid of them. Five years didn’t seem like such a long time when you signed the documents but after a few months you wonder when it will ever end. If you have additional money after you’ve paid all your bills and savings, you might want to consider doing an early loan payoff. A few of the main reasons to do an early pay off on your car loan is to reduce the amount of total interest paid out, free up cash, and boost your credit.
Reducing Interest
When you finance things, especially a car, you wind up paying more over the course of the loan than the actual price. With the height of interest rates today, you could wind up paying to close to double the principle amount of the vehicle. The only way to avoid interest all together is to purchase your vehicle outright. If paying cash is not an option, then you want to have really good credit, so your interest rate doesn’t drown you. If all else fails, the last and final option is still to pay the car off early so that the full amount of interest doesn’t get a chance to accrue. When I needed to get a reasonable loan for my vehicle I searched car loans Cincinnati OH.
Free Up Cash
Having a solid few hundred bucks coming out of your wallet every month can get old fast. If you can afford it, double up on your payments and cut the amount of your monthly payments in half. By the time you pay your car loan and car insurance for the month, you could’ve saved a lot of money for a rainy day. Now calculate that amount over a year. It gets crazy when you think about it. Paying the final payment on your vehicle is so freeing. Even if you have to now allocate that money to a different bill you’re dreading, you are still free of a car payment, and that’s a very special feeling.
Boost Credit
Paying off a debt such as a car can give you great car credit. If you had a higher than normal interest rate the first go around, paying off your card can give you the boost you need on your credit report to show that you can manage payments over time and commit to paying back a loan. Now you should qualify for much better and lower interest rates, which will also make your monthly payments lower the next time you’re ready to purchase a vehicle.
Conclusion
Some people advise that early payoffs can hurt. There can be a penalty in some cases, so do your homework. As your vehicle financing company if they penalize you for an early payoff. If the answer is no, then start sending in the extra cash and watch it melt away your principle balance. Remember the main reason you want to do an early payoff on your car loan is to reduce the interest paid over time, to free up some cash, and to boost your credit for future purchases.
