You’re accustomed to the typical auto loan payment each month. Every month, you’re one step closer to your goal.
What if you could say goodbye to that loan earlier than expected? There are various pros and cons to paying off a car loan early. If you’re confused about the next step, continue reading below.
What Are the Advantages?
Everyone loves to save money. When it comes to your paying off your car loan, here are some of the benefits of completing your payments early.
Save Money on Interest
In the end, you pay more than the loan you’re approved for due to paying monthly interest. If you decide to pay off a credit union car loan early, paying a higher amount each month will shorten the time of your loan payments. Therefore, you will decrease the interest you must pay for the loan and save money in the long run.
Additional Funds Each Month
For a moment, you will pay more each month to complete the loan payments more quickly. Once the loan ends, you’ll finish these required monthly payments. In return, you’ll have more money readily available each month for other expenses! Whether you place that extra money into your savings or put the money into additional necessities, you’ll have extra wiggle room in your monthly budget.
What Are the Disadvantages?
Now that you know about some of the pros of paying off a car loan early provides, here are some disadvantages to keep in mind.
Prepayment Penalties
Some banks or credit unions may charge a penalty if you repay a loan earlier than anticipated. Be sure to ask how much the penalty will be. Compare that amount to the interest you would pay if you stuck to the original timeline. See how much money you would save or lose in this situation before making your decision.
Decrease Your Credit Score
You may notice a slight dip in your credit score after paying off a loan early. This isn’t a long-term effect that’s detrimental to your credit score. But if you’re looking to qualify for another loan or credit card in the immediate future, this is an aspect to consider.
Strain on Finances
While paying off your car loan early has many benefits, it’s not worth it if it negatively impacts your monthly financial necessities. Don’t drain your savings account simply to pay off this loan at an earlier date. Although your car loan would be no more, you may face more challenges because you don’t have the comfort of your savings backing up your daily life.
Before making a decision, remember to weigh the pros and cons and decide if paying off your car loan early is a doable task you can take on. Examine your income, fixed payments, and savings before making this big decision for you and your family.