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Does paying off a car loan early save money?
I recently came into extra cash and I’m thinking about the best ways to use it responsibly. I immediately thought of paying off my car loan. Does paying off a car loan early save money? If so, I feel like that would be a really good way to spend my money.
Chloe Jenkins · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Kudos to you for trying to use that extra cash responsibly! If your
car loan
agreement does not have prepayment penalties
, then paying off your car loan can save you money.Lenders make money off of your car loan, so paying it off early doesn’t work in their favor. That’s why some lenders will have prepayment penalties, meaning you end up paying all the interest a lender would earn from the loan upfront before paying off the loan. With prepayment penalties, you don’t end up saving much, so review your loan to confirm if you have penalties.
If you don’t have penalties, paying off the loan early saves you money on interest over the life of the loan. However, if you have any other expenses with a higher interest rate than your car loan, your money might be better suited toward that (such as credit cards and personal loans).
There are still ways to lower the monthly payment on your car loan. You should consider
refinancing
your car loan to save money.To save time and effort looking for good deals refinancing, try the
Jerry
app. No matter what your credit score is, Jerry makes refinancing your car easy by comparing quotes from multiple lenders to find a rate that works best for you. On average, car owners pay $85 less every month by refinancing their auto loan.View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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