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Is it smart to pay off a car loan early?
I recently won a decent amount of money playing the lottery, and I want to use it wisely rather than waste it. I was thinking of using it to pay off my car loan, but is it smart to pay off a car loan early?
Jack Walsh · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Wow, you must be excited to have won a meaningful amount playing the lottery!
Paying off your
car loan
early is generally a smart decision, but it depends on your financial situation.There are many benefits to paying off your car loan early, such as:
- Owning your car with a free and clear title
- Saving money and freeing up funds by no longer having a monthly payment with interest
- Improving your debt to income ratio
- Avoiding anupside-down car loan
However, you may run into these drawbacks:
- Your credit score will dip, and while typically temporary, if you are planning another large purchase soon, you may want to keep your score as high as possible.
- You might be able to use your money more effectively, especially if you have any loans with a higher interest rate.
If you pay off your car loan, you should let your
car insurance
company know. Additionally, you will no longer be required to carry comprehensive
and collision
coverage on your policy, although it’s always a good idea to have.While updating your insurance company and reviewing your coverage options, you should also make sure you’re getting the best rate by using
Jerry
.Jerry is an insurance comparison app that shops for low prices with over 50 different insurance companies for free. You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away. They even help cancel your old policy once you’ve switched!
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- Gregory R.
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