Car loans are one of the most common loans in the United States. Many financial institutions give you the possibility to borrow the money to pay for your new car in exchange for some interest.
Because of this, loans are becoming more and more flexible for all kind of people. So you may find yourself in a situation where you have taken out a car loan and have to pay it off during at least 6 or 7 years. Although you will be able to pay a specific amount each year, the interest will be higher if you pay it in more time. This makes you think you should try to pay it off earlier to reduce the costs.
Today we are going to tell you why you should or shouldn’t try to pay off your car loan early and also what is interesting to know if you have decided to do so.
Advantages and disadvantages of anticipating the car loan payment
If you are thinking about anticipating the payment of the loan you took out for the purchase of a car, you should take some elements into account. It should not be a quick decision, but analyzing some important points will give you the answer as to whether or not it is advisable for you to anticipate it or pay it on time.
For example, it is important that you calculate your current financial health. If right now you have a high salary that allows you to pay for the loan, but in a few months you will no longer have a good income, and you will need the money, perhaps you should not risk it.
But if you have a long lasting contract or a source of income that you are sure will continue, you could repay the loan more steadily or increase the repayment amount.
On the other hand, you should also calculate how much extra money you will have to pay for the monthly interest. If it is a low-interest loan, it may not be worth paying it off all at once. But if the interest does represent a considerable amount of savings, then anticipating the payment may be the best decision.
And lastly, another thing you should think about is how your moves regarding the car loan affect your credit score. Sometimes, depending on how long it takes to pay back the money, you will lower or raise your credit score. The most common thing is precisely to lower the score at the beginning and then manage to raise it by being punctual and responsible.
Some calculations on how to pay off your car loan fast
Have you calculated how much you would save or lose by bringing forward your monthly loan payments? Well, against all odds, you may be confused by this.
Some people think that by paying every 15 days instead of every month, they will save on interest. But the problem comes when you discover that by making a greater number of payments, you will have to make an extra payment, and the amount of money will increase.
Another calculation that you should do is to review what the financial conditions of your car loan were. Perhaps there you will discover, for example, some supplement that you are paying and that tips the balance towards paying the loan in advance.
The obvious conclusion is that you should weigh up whether it is convenient for you to anticipate the car loan payment or, on the contrary, it is better that you pay it little by little over a few years.