Should You Pay Off a Car Loan Early?

Paying off your car loan early might save you money by reducing the total loan interest you pay. But if you have other higher-interest debt or no emergency savings, the disadvantages of paying off your car loan early could outweigh the advantages.

In general, ask yourself whether the extra money you put toward paying off your car loan early could provide a more significant financial benefit elsewhere. Here are some pros and cons to consider.

Advantages of paying off your car loan early

Save on the interest you pay

The interest you pay on an auto loan is spread over the loan term. Part of your monthly car payment goes toward paying principal, the lump sum you borrowed, and part to paying the loan’s interest.

Most auto loans use simple interest, so the interest amount you pay monthly is based on the principal amount you still owe. Therefore, when you pay more than your required monthly auto loan payment, you’ll want to ensure the extra funds go toward paying the car loan principal….

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This article was written by Shannon Bradley and originally published on