Can I Pay Off My Car Loan Early?

Posted by on November 28, 2019 @13:49:32 EST

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We’re all familiar with exactly how important it is to have a car these days. As a matter of fact, for the majority of people — that is, those who don’t live in built-up, urban environments with easy access to reliable systems of public transport — cars are practically a necessity. Whether it’s as a way to get in and out of work, the ability to make it down to the grocery store and back, or even if it’s just the sheer sense of freedom automobiles provide, there’s no doubting the fact that most of us will need to get a car at some point or other.

Because there’s such high demand for cars, the industry has settled into a resting state in which no one vehicle is going to be prohibitively expensive (Lamborghinis excluded). Competition from warring manufacturers has driven the general cost way down; but that doesn’t mean it’s cheap. 

Most people will need to take out some sort of loan in order to finance their car. It’s a normal part of life, and it’s certainly more common than being able to save up enough money to pay for the car upfront. 

A Loan is a Loan

However, a loan is a loan, and financial commitments come with their own burdens. Since the loan you’ll be able to get will depend on the car loan interest rates at the time (among a host of other factors) it’s a safe bet that you’ll be paying off your car financing plan for some time to come. When you signed the deal, you’d have been presented with the terms of the loan, as well as how much you’ll need to pay back each month. 

Some of that will be in the form of interest, while the rest will go towards the actual value of the car. Loan terms themselves vary hugely from case to case, but a standard enough period would be between around 48 and 96 months.

The longer the length of the loan, the lower the monthly repayment amount — but the story doesn’t end there. Even if it’s not a massive monetary figure in total, the fact that there’s an amount of unpaid money hanging over your head is an understandably uneasy prospect for a lot of working people. That’s why one of the questions we get most often here at is whether or not it’s possible to actually pay a loan back early. 

By paying the loan off early, you’ll be clearing up vat’s probably one of your single biggest, most persistent monthly costs. There are other advantages as well, which we’ll get into in a moment, but in truth, a lot of the benefits have to do with the fact that you won’t be so beholden to the car loan interest rates that are prevalent where you live when you bought the car. There’s a lot to gain, which is probably also why it’s not exactly easy to pay off loans early. Keeping that in mind, we’ve decided to create a handy guide to paying off car loans early. 

Even though none of these tips on their own will be enough for you to get out from under the car loan debt, if you can apply each of them in a consistent, manageable way, you’d be amazed just how quickly the small pluses will begin to add up in your favour. The most important aspect of creating any sort of steady financial life is the ability to create good habits. If you can make some of the below suggestions into regular actions you perform without hardly even thinking about them, you’ll be well on your way to paying off your car loan early.

Advantage One: You Can Forget About The Debt

Debt has been shown to be one of the single biggest stressors modern humans have to endure in today’s world. Think back to when you were a kid; did you ever borrow a quarter from one of your pals? And if you did, how did you find the feeling of knowing you needed to give them back some cash? Nobody likes owing money, but in this case the issue goes beyond that, since the consequences are a lot more serious than maybe getting a kick in the shins for your trouble.

Ranging from a tanked credit score (which won’t help next time you need to negotiate a deal with the current car loan interest rates) right the way up to possible repossession of the vehicle you need so much, the consequences for missing a payment can be pretty dire. So if you can manage to pay the loan back early, you’ll be saving yourself months and months of stress, potentially. This will have a noticeable effect on your state of mind, but it’ll wind up having even more of an effect on the way your body functions normally, with cortisol (the stress hormone) being shown to drop once we can remove major stressors.

Advantage Two: You Don’t Need To Worry About Car Loan Interest Rates

When you were going through the process of getting a car loan for that dream automobile, you probably had to devote a lot of time to studying the current car loan interest rates. The interest rates themselves are variable, and change a lot depending on a ton of factors, of which the current state of the economy is only one. How long did you have to spend poring over your credit score, wondering if you’d be able to get the best of the car loan interest rates that were available at the time?

By paying off your loan early, you’ll be able to forget about car loan interest rates for good — music to your ears, no doubt. Of course, when it comes time to replace your car or to try and arrange a better deal, you’ll have to go back to checking the various figures and working out for best option again. But despite what everybody says about cars being such depreciating assets, in reality your car will probably last you many years if you take good care of it, so you can write off worrying about the interest rates on your car loan for a while at least.

Advantage Three: You’ll Be Able To Save More Money

Somebody holding two twenty-dollar Canadian bills.

Currently, your monthly automobile repayments probably may up the bulk of your expenses. They’re a lot more serious than grocery bills or cable TV, and you may have found yourself struggling to make ends meet because of just how much they cut into your take-home pay. There’s good news, though, which is that the earlier you pay back your car loan, the sooner you’ll be able to start putting that extra money to good use. 

Low-risk, low-return mutual funds are a great way to make use of some extra cash that you’ll have coming in on a monthly basis. By budgeting correctly, any excess money you have at the end of the month could be put to work for you; it’s all a matter of working out the facts and figures in a way that’s both sustainable and manageable for you. 

Car loan interest rates can be annoying, granted, but going the extra mile in order to get the machine paid off in full sooner rather than later will free you up to save more of your money — meaning you can start to get even further ahead in your financial life. 

Advantage Four: Your Credit Score Will Improve

Because your credit rating is so highly dependant on paying back your financial commitments in full and on time, car loans can either be the making or the breaking of it, depending on how things pan out. The good news is that any missed payments you’ll be able to clear up won’t necessarily have a long-lasting, catastrophic effect on your score. Similarly, by getting thee burden of the loan off or your shoulders for good, you’ll be granting your credit score some room to breathe, which can only be beneficial in the long run.

One easy way to see the credit benefits of paying off a car loan early is in the interest rates. Given that your FICO score is basically just a way to represent how likely you are to pay back the money to whomever it is that’s lending you the funds in the first place, any work you can do to prove that you’re reliable will help to swing your score firmly towards the black. Moreover, big, long-term commitments like car loans or housing repayments are weighted quite heavily in the score’s algorithm, meaning that the boost you can give your score won’t be insignificant at all.

As if the pot needed to be any sweeter, remember that the better your score is, the better the car loan interest rates you’ll be offered when it next comes time to secure yourself financing for a vehicle. The difference could wind up being as great as five or six percentage points, depending on what the state of your financial life was before getting the first loan. While it doesn’t look like a lot on paper, in reality it has a huge impact.

After all, interest rates themselves are just a way for lenders to secure some kind of security for themselves. Any money you pay in interest isn’t actually going towards the value of the item; it’s just a way to offset some of the risk incurred by lending somebody else money on the part of the dealership who loaned you the car in the first place. Who wouldn’t want to put more of their monthly repayment amount towards the cost of the car itself?

Now that we’ve seen just how beneficial it can be to pay off a car loan early, we’re delighted to be able to give you some good news — it’s completely possible to get rid of that particular financial commitment well before the end date of the agreement. It won’t be easy, necessarily, but it’s definitely not impossible. And even if you’re not aiming to have the whole thing paid off in the next few weeks, it’s always a good idea to put some good financial techniques into practice when it comes to serious loans like automobile financing deals. 

Here are a couple quick ways you can help yourself pay off your car loan faster.

1: Make Payments Every Two Weeks

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Rather than making just one payment a month, do your best to split that amount in half and pay it every two weeks. This will eventually wind up in you making an extra payment in that financial year, since there are 52 weeks in a year, but just 12 months.

2: Put More Towards It

Whether it’s getting yourself a side hustle to help cover the costs or whether it’s just a matter of coming up with a more precise budget, any additional income you can divert towards the car loan repayments will pay dividends down the line. By making you car financing plan a priority, you’ll have it paid off in no time — meaning you can then avail of all the above advantages too!


There are great reasons to pay back your car loan early, and fortunately, it’s not impossible to do so, either. By being smart with your money and your budget (and by making long-term financial commitments a priority of yours) you can shave several months of the total length of the loan, and find yourself in possession of the vehicle sooner rather than later. 

If you’re still confused about car loan interest rates — or if you’ve been having a hard time getting approved for a loan because of your credit score — get in touch with our experienced, friendly team today. We’d be happy to see if there’s any way we can help you out in your current situation.

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