How to Pay Off a Car Loan Early

Paying off your car loan ahead of schedule can feel like a major financial win. It will free up cash in your monthly budget and save you money on interest. Eliminating your vehicle payment will also reduce your overall debt load.

Learn how to pay off a car loan early so you can save money on interest and eliminate a recurring payment from your budget.

How to pay off a car loan early

Make biweekly payments

If you use this method, you will make 26 half-payments per year, or 13 full payments instead of 12. Use our auto loan calculator to see how this affects your total interest paid.

Round up your monthly payment

Rounding up your car payment is one of the easiest ways to make progress without dramatically changing your budget. If your vehicle payment is $447, you could round it up to $500. That extra $53 goes directly toward your principal balance.

Make one extra payment per year

If making biweekly payments isn't an option, committing to just one extra payment per year can still make a huge difference. You can time this extra payment with a tax refund or work bonus. 

Put windfalls toward your loan

Any time you bring in unexpected cash, consider putting some or all of it toward your loan. Examples of windfalls include work bonuses, tax refunds, and cash gifts.

Does paying off a car loan early hurt your credit?

Paying off your car loan means the account will be closed. When an account is closed, it will have a small, temporary impact on your credit score because your credit mix becomes less diverse and the average age of your accounts gets lower.

The impact of credit scores on auto loans goes both ways — a stronger profile can help you refinance at better rates before payoff. If you want to continue building your credit after paying off your loan, maintain consistent, on-time activity on your other accounts. 

Conclusion

Paying off your car loan early can support your long-term financial goals. If you want tools to help you continue building strong credit habits, check out Kikoff. 

Take a step toward stronger credit habits with Kikoff.