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Does paying off my car loan early avoid interest?
I’m always looking to save extra money and I just agreed to a new car loan. Can I save money by paying it off early?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Yes! Paying off your
car loan
early can certainly help you minimize the amount of interest you’ll be charged. Depending on the length of the loan and your interest rate, you could save hundreds or even thousands of dollars.If you’re able to pay the loan off early without compromising your financial health, try doubling up on payments, paying in lump sums, or making large quarterly payments. However, do not pay off your loan early if the lender charges
prepayment penalties
.Often slotted between 2% and 4% of the value of the vehicle, these pesky charges will cancel out any benefit you might get from making your payments early. Lenders may put prepayment penalties in place to avoid losing income from interest.
If you’re looking for ways to free up money to pay down your car loan, consider switching to a cheaper car insurance policy with
Jerry
. Sign-up takes under a minute, and you’ll never need to fill out a long form or make an awkward phone call with an agent again.View full answer
- Gregory R.
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