Benefits To Paying A Car Loan Off Early

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  2. Benefits To Paying A Car Loan Off Early
Often I hear the question of "are there benefits to paying a car loan off early?" Well of course there will be benefits to that! If it is an option for you to do that you definitely should hear how it could make your financial life much better. There are a few different ways that you can do that such as; making additional monthly payments, increasing the amount of principal that you pay monthly, or just paying a lump sum. Keep in mind that while there are benefits to paying off your loan early there may be penalties depending on the type of loan that you have taken out so be careful or at least weigh out the pros and the cons before making any definitive decision.

Pros (Advantages):

  • You can save money. The specific way that you can do this is through the interest. The longer that you are making payments the more overall interest that you are going to pay.
  • It generally will improve your credit score. This has a major advantage to it because it will help you take out different types of loans in the future in case you possibly were looking into purchasing a home or another vehicle.
  • You are going to have more cash available every month. This means you have opportunities to save for other large purchase, to go out some more, or just simply not stress about the payments.
  • If you have an older car then you can save a lot on insurance. You may be required to have a higher amount of coverage than necessary because of the loan and by paying it off you can lower the amount of coverage on the vehicle.

Cons (Dangers):

  • Penalties from the lender. Depending on the lender and what terms have been set up for the loan there could be some fees to pay. These typically will be the opportunity cost loss that the lender is losing due to you taking this action. Depending on how much you could save and how much you would pay it is best to calculate it all out and see what the better option is.
  • Lump sum problems. Unless you have fallen into a lot of money through an inheritance or lottery then you should have just waited and never have taken a loan out to begin with. At this point it will be best to simply put that chunk of money to use for something else and save it for a different time.

The big problem that you may face is if your lender is going to have any penalties set up. As long as they do not then you will have only advantages to paying your car loan off early. It is not an option available to most people, but if you are lucky enough to have that possible for you then by all means go for it.

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Do you meet the basic qualifications?

  • At least 1 year with current employer
  • A minimum income of $1,500 per month
  • No repossesions within the last year
  • Any bankruptcies must be discharged
  • Money down may be required, but not in all cases
  • Must be a current resident of the U.S. or Canada