Is It Possible To Pay Off A Personal Loan Early
It is possible to pay off your personal loan early, but you may not want to. Making an extra payment each month or putting some, or all, of a cash windfall, toward your loans, could help you shave a few months off your repayment period. However, some lenders may charge a prepayment penalty fee for paying the loan off early.
The prepayment penalty might be calculated as a percentage of your loan balance, or as an amount that reflects how much the lender would lose in interest if you repay the balance before the end of the loan term. The calculation method will vary from lender to lender, but any prepayment penalties would be outlined in your loan agreement.
There are a number of lenders that don’t charge a prepayment penalty. SoFi, for example, won’t charge you a prepayment fee for paying off the loan early and there’s also no origination fees or late payment fees. If you’d prefer looking into a peer-to-peer lender, LendingClub is another option for loans with no prepayment fee. Typically, you’ll need good to excellent credit to qualify for the best personal loans with the best terms.
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7.99% to 23.43% when you sign up for autopay
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Loan purpose
Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
Terms apply.
But What If Im Planning To Sell My Car
You can also make your car a more valuable asset by not having it tethered to debt. If the Kelley Blue Book value of your car is $15,000 but you still owe $8,000 on it, your car will really only get you $7,000 if you sell it. If youre looking to sell your car in the next yearand maybe replace it with a less expensive car paid for with cashyou could come out ahead if you can offset further depreciation with what you save on interest.
You do want to consider, though, that the cost of a car is not just your car payment. Theres insurance, theres maintenance, and theres gas to keep it moving from point A to point B. But its far more likely that a car paid in full will cost you less overall than a car with a loan attached to iteven with the occasional expense of a repair.
And keep in mind what Dahle once wrote when answering a question from a doctor asking if he should pay off a $12,000 car loan: Quit buying cars on credit. Pay this one off ASAP and then keep putting the payments into a car account.’ When it comes time to buy your next one, you can use cash. There’s no reason for anyone, much less a physician, to buy a car on credit.
Or you can listen directly to him on the matter.
Other Mortgage And Financial Calculators
In addition to the standard mortgage calculator, this page lets you access more than 100 other financial calculators covering a broad variety of situations. Choose from calculators covering various aspects of mortgages, auto loans, investments, student loans, taxes, retirement planning and more.
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Our Recommendations For Auto Refinancing
Refinancing is an excellent idea for those who cant or shouldnt pay off a car loan early. Motorists who refinance their vehicles often end up reducing their high interest rates, though car payments will last for a longer time. Below is a quick roundup of some of the industrys best auto refinancing options.
A Quick Recap Of Auto Loan Basics
Before we discuss the pros and cons of paying off your loan, lets do a refresher on how auto loan payments work in the first place.
Principal is the total amount of money youre borrowing to buy the car. So if youre buying a $30,000 car and can make a down payment of $5,000, youll be borrowing the other $25,000. Thats your principal.
Interest is the fee charged by the lender for borrowing their money. Interest equals income for lenders keep that in mind as we dive further in.
In your existing and future loan documents, you may also run into two different types of interest:
Simple interest, which the vast majority of lenders use, is calculated using your outstanding balance on the day your payment is due. If you start making payments earlier, more frequently, or simply pay more than your monthly payment, your remaining interest should shrink in real-time, allowing you to pay off your loan faster.
Precomputed interest is all calculated upfront, and the total amount of interest you have to pay your lender doesnt change even if you start paying off your loan faster.
Whether youre paying simple or precomputed interest will make a difference in your options for early payment.
For simple interest, some lenders will charge you a fee for paying off your loan early since theyll be missing out on some expected interest aka income.
Most of the time, though, youll be on a simple interest plan so thatll be our focus moving forward.
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Early Auto Loan Payoff Calculator Faqs
What is a pay-off car loan early calculator?
A pay-off car loan early calculator is a calculator that helps you know how much time you can shave-off from your car payment and the interest you can save by increasing your monthly car payments.
How will an auto loan calculator help me with extra payments?
Auto loans that span for a long period are great, but they accrue a lot of interest to be paid over time. Our auto loan calculator will show you just how much you can save on these interests by making extra monthly payments.
How do I find out my car loan amortization schedule with extra payments?
You can get an idea of your amortization schedule when you use our auto loan early payment calculator. You will be shown just how much you’ll be owing at any period in the life of the loan for both regular payments and accelerated payment plans that use extra payment.
Is there a ‘remaining car loan payoff calculator’?
Yes, there is a remaining car loan payoff calculator. This auto loan early payment calculator provides you with accurate information about how much money you still have to pay off on a car loan. You will, however, need to supply details on the loan amount, period, and extra payment.
How to pay off car loan calculator faster?
How to pay off a car loan early using a lump sum calculator?
How fast can I pay off my car loan?
When will my car be paid off?
How to determine the payoff amount on my car loan?
What about car loan amortization calculators with extra payments?
Why Paying Down A Car Loan Can Be A Good Approach
Experts say that paying off a car loan early can be a smart approach if you’re able to afford it. “It’s always a good idea to pay down your loans and a car purchase is probably one of the biggest loans that people take out short of a home purchase, so it’s a good place to start,” says Ronald Montoya, senior consumer advice editor with auto research company Edmunds.
Beyond peace of mind, there are tangible benefits to paying off your car loan, Montoya says. For one, it could save you money on interest, especially if you have a 60-, 72- or even 84-month auto loan.
Say you took out a $30,000 loan with a 6-year repayment term and a 5% interest rate. You’d end up paying nearly $35,000 in total . But if you pay off that loan early, you could cut back on some of that interest.
Paying off your car loan can also take pressure off your monthly budget, Montoya says. After your car is paid off, you now have extra money you can use to pay down other debt, increase savings or put toward expenses.
But before starting to pay off a loan early, consumers should check to see if their lender even allows it, Montoya says. “Make sure that you look into what fees they would charge if you pay down your loan early,” he says, since some lenders charge a prepayment penalty.
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Why Pay More Than Your Car Is Worth When You Can Pay Off Your Car Loan Early
About seven out of 10 people borrow money to buy their cars, and a car loan is one of the largest financial obligations you can have.
If youre one of them, you may have a loan that will take you 60 or 72 months to pay off. Thats five to six years! Thats too much interest to have to pay. So we want to help you get out from under that loan faster and save money on interest by giving you 6 ways to pay off your car loan early.
Length Of Credit History
Paid off auto loans only remain on your credit history for up to ten years. It may seem like plenty of time, but once it is removed, your credit score will fall. Lenders want to see a lengthy credit history. If you stay on schedule and pay off your car loan according to your original terms, you will have well over ten years of credit history built up.
The lengthier your credit history, the better shot you have at achieving a good or excellent credit score. If youre working towards building or repairing your credit, it is best to keep the auto loan open to build up a positive credit history. Once you close it, the countdown starts to when it will go off your credit report.
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Using The Auto Loan Calculator
- This calculator uses your original loan amount, length of the loan and interest rate to calculate your current monthly payments. From there, enter the number of months left on the loan, then enter how much extra you’d like to pay each month to see how much sooner you’d pay it off.
You can adjust that figure using the slide bar to experiment with how varying the additional payment would affect how early you can pay off the loan and how much interest you’d save. Your results appear instantly at in the blue field at the top of the calculator and just below it at right as you adjust the extra payment figure.
- FAQ: Arm yourself with various scenarios that fit your budget goals
Start by entering the number of months remaining on your car loan, than enter the full length of the loan, in months. If you want to see the effect of making extra payments over the entire length of the loan, just enter the full length of the loan in both places. Next, enter the amount of the loan and the interest rate. The calculator will immediately display your regular monthly payment for the loan in the place indicated. Next, enter any additional amount you’d like to pay each month. The number of months you’ll shorten your loan by and your interest savings will appear at the top of the page.
Saves You Money On Interest
Paying off your car loan can reduce the amount of interest you’ll pay over time because you’ll no longer be responsible for paying interest once the account is paid off. How much you save, however, depends on the loan’s remaining balance. Typically, you pay the most interest at the beginning of a loan, so you may not pocket as much if you pay it off within the last few months of the term.
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Risks Of Paying Off Your Car Loan Early
There are also some risks to keep in mind when deciding whether or not to pay off your car loan early:
- Your lender might charge a prepayment penalty, so check with them before deciding to pay off the loan too soon so you donât owe more than planned.
- Your credit score could temporarily dip when the loan is closed out, which automatically happens when the loan is paid off. So, if you plan to take out another loan soon, like a mortgage, you might want to hold off on paying off the car loan until after youâve secured the new loan.
- You might have other debt with a higher interest rate that you should focus on paying down first.
How To Pay Off Your Car Loan Early
Once you weigh out the benefits and drawbacks, you can decide whether its a good idea to pay off your car loan early. If you decide it makes sense for you, youve got a couple options for paying off your loan ahead of schedule.
One way to pay off your car loan early is to make one lump payment. Contact your lender to find out your car loan payoff amount and ask how to submit it. The payoff amount includes your loan balance and any interest or fees you owe.
You can also pay more than the minimum amount due each month. Making at least one extra payment on your loan every month, or adding more money to your monthly payment, may help you pay off your car loan early. But if you plan to go this route, ask your lender to specifically apply any extra payment to the loans principal.
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When Is It Better To Keep The Loan
Here are some situations when you’re better off keeping your car loan:
- When you have a low interest loan or 0% financing: On average, interest on car loans is lower than on many other types of debt. For example, current credit card interest rates average about 17.75%, while car loan interest rates average about 4.75%. If you’re carrying credit card balances, paying them down makes more financial sense than paying off a car loan early. Were you lucky enough to get a 0% financing deal when you bought your car? Then there’s really no benefit to paying the loan off early. If you’ve got extra cash burning a hole in your pocket and no other debt, invest it .
- When you don’t have an emergency fund: Experts recommend keeping three to six months’ worth of expenses in an emergency fund in case you lose your job or are hit with unexpected expenses. If you don’t yet have an emergency fund, any extra cash should go towards establishing one, rather than paying off your car loan early.
- When you’re close to the end of the loan: If you only have a few more loan payments to go, paying off your car loan early won’t save you a significant amount of interest. In this case, it’s better to keep the loan, make those remaining payments on time, and benefit from the positive effect this will have on your credit score.
Less Risk Of Being Upside
Sometimes cars depreciate faster than the payoff schedule of an auto loan. This is especially true if you have a long repayment term or a high interest rate.
Being upside-down on a loan, or owing more on the car than its worth, is a tricky situation. You may run into problems if you try to sell or trade in the vehicle or if the vehicle is totaled. In all instances, you may need to pay your lender the discrepancy in a lump sum although most lenders will allow you to roll the amount into your new loan if you trade in the vehicle.
Key takeaway: Understand how your vehicle will depreciate and avoid owing more money on your loan than the value of the car.
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Does Paying Off Your Car Loan Early Hurt Your Credit
Paying off your car loan early can hurt your . Any time you close a credit account, your score will fall by a few points. So, while its normal, if you are on the edge between two categories, waiting to pay off your car loan may be a good idea if you need to maintain your score for other big purchases.
However, your credit score may improve over time. If you have a high debt-to-income ratio, paying off a big debt like a car loan could help your credit score.
But putting your money toward other goals, like savings or high-interest debt, may be the better route. This is because auto loans tend to benefit your score overall. Cars may be depreciating assets, but building a history of on-time payments will go a long way to maintaining and improving your credit score.
Paying off your car loan early should only have a small negative impact on your credit score, but ultimately, it will mean you have a more limited ability to build your score over time.
