So you’re currently financing a vehicle and wondering whether paying off your loan early is a good idea. It depends. We’ve got some solid general advice on the subject, so read on to learn about what is best for your particular situation. Let’s help you answer the question, “can I pay off my loan at any time?”
For future reference…
When you’re looking at your loan, there are a few things that you want to avoid before signing on the dotted line. First, avoid prepayment penalties. This is an old-fashioned thought pattern but still works its way into some loans. You want the ability to make extra payments or pay off the loan entirely without penalty. Speaking of penalties, if you’re already signed up for a loan, you might want to sit down with the Go Finance team to discuss your loan and the possibility of early payment penalties.
Early Payment Penalties
This used to be a common practice with most vehicle loans. Basically, it just says that if you pay your loan early, you will face a percentage penalty. This was to avoid the consumer paying off the premium, therefore saving themselves interest. Already, you can see why some lenders wouldn’t like this. You would be taking money away from them. This is important to ask about, because if you come into additional funds, you will want to be able to pay off the loan sooner.
There’s an opportunity here
The best thing about getting a vehicle loan is that it is one of the best ways to build or rebuild your credit. As you make payments and pay off your vehicle, you can watch your credit score slowly rise. This goes back to understanding how your credit score is calculated. A huge percentage is payment history.
Now, if you were to pay off a loan early, it really makes no difference in the eyes of the lender or the credit bureaus out there. What they want to see is that you’re responsible, making your payments in full and on time. Making the rest of your payments in one lump sum makes no difference to them. So in this regard, there’s very little reason to pay off your loan prematurely. The opportunity is with building trust with the lender, and trust comes in time, right?
Can I pay off my loan at any time? – Avoiding Interest
Imagine this deal: you can pay off your loan over 10 years and the interest rate will be amazing! That’s so much less a month than paying it off over 5 years! Yes, that sounds great, but in the world of vehicle finances, smaller payments over a longer time frame means a lot of accrued interest and sometimes more money over the length of the loan. If this is the type of loan you have, then it might sound appealing to pay it off ASAP and avoid all that interest. And that might just be reason enough for you.
It might help to figure out how much you can spend monthly, up to a maximum of 10% of your income for 5 years. That’s the maximum number of years you should be financing over. If you’re currently in a longer length loan, then consider paying it off, making more frequent payments, or consider refinancing your loan with Go Auto Outlet!
Regardless of what you’re thinking right now, we’re happy to help you figure it all out here at Go Auto Outlet. Come on by our dealership to speak with the Go Finance team in person, and we’ll be happy to offer you a consultation. You’re also more than welcome to contact us today to speak with one of the Go Finance Advisors for a pre-consultation. We hope we’ve helped you answer the question, “can I pay off my loan at any time?”