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What percentage do you have to pay for a prepayment penalty?
I want to pay off my car loan, but I'm afraid I might have a prepayment penalty. How much do these penalties typically cost?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Good question! On average, lenders charge between 2% and 4% of your remaining
car loan
balance as a prepayment penalty, so careful consideration is necessary to see if the prepayment penalty will cost you less than the interest you would pay anyway.Typically, you can go online or within your lender’s website to find out how much interest you would pay in for the remainder of your loan. Compare this to your lender’s prepayment penalty, and this will let you know if the prepayment is the better approach.
You also may want to factor in
car insurance
. When you have a loan, lenders require full coverage auto insurance. If you pay off the loan, you can switch to other types of coverage to cut costs. As a result, your decision to pay off the loan early may save you money overall when factoring in insurance savings.If you decide to pay off your loan and switch your insurance coverage, make sure to check out the
Jerry
app to easily get the best deal on the coverage you need. Sign up in minutes to compare rates from over 50 top insurance providers.View full answer
- Gregory R.
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